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SuSE Businesses Novell The Almighty Buck

Hedge Fund Offers $2 Billion For Novell 144

Posted by Soulskill
from the large-potatoes dept.
CWmike writes "A hedge fund that is already one of Novell's largest shareholders offered on Tuesday to acquire the struggling, cash-rich enterprise software maker for $2 billion. The unsolicited offer, from New York-based Elliot Associates L.P., is for $5.75 per share in cash, a dollar per share more than Novell's closing price Tuesday of $4.75. The offer caused Novell's stock to leap 29% to $6.15 in after-hours trading. Because Novell is so cash-rich — it had $991 million in cash and equivalents at the end of January (PDF) — Elliott says the deal values Novell as an enterprise alone at about $1 billion."
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Hedge Fund Offers $2 Billion For Novell

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  • by Anonymous Coward

    a struggling cash rich enterprise.

  • by eldavojohn (898314) * <eldavojohnNO@SPAMgmail.com> on Wednesday March 03, 2010 @09:42AM (#31345282) Journal
    A law firm is already investigating [prlog.org] 'potential breaches of fiduciary duty and other violations of state law in connection with an alleged unfair takeover.' Basically seems to allege that should this deal go through, it would be unfair for current long time shareholders of Novell as Elliott's takeover would be underpaying and ripping them off. I'm not sure if this is standard operating procedure or not but one would think that the stock market would offer a good estimate of Novell's true worth. Apparently someone thinks 20%+ on top of that is unfairly low.
    • by idontgno (624372)

      In my typically uninformed and cynical manner, I'll speculate that the phrase "potential breaches of fiduciary duty" is lawyer-ese for "your bid is too low". This would qualify as "leverage" in the course of "haggling". And also a damn fine occasion to use "lots" of gratuitous "scare quotes".

      ObDisclaimer: I am neither a lawyer nor a... whatever you call a financial dude. Just a student of human behavior.

      • Fiduciary duty (Score:5, Insightful)

        by sjbe (173966) on Wednesday March 03, 2010 @10:13AM (#31345772)

        I'll speculate that the phrase "potential breaches of fiduciary duty" is lawyer-ese for "your bid is too low".

        No speculation needed. That is exactly what it most often means. The board of any company has a duty to maximize the return to any shareholders. Selling the company might be the best way to accomplish that - or it might not. Everything in finance is essentially a guess as to what will make the most money. It needs to be a well researched and reasoned guess but it is still a guess at the end of the day. If shareholders think they are getting a bad price it is entirely reasonable and proper for them to lawyer up and say so.

        I actually researched Novell as a possible investment about 5 years ago and came to the conclusion that the company was in a slow death spiral. Not an inescapable one but I don't see them doing anything that gives me confidence they could escape it and their stock price hasn't budged since then. The price being offered is approximately the current market capitalization. (the market cap rose yesterday once the offer price was announced - arbitrageurs bought in to bring the price close to the offer price) Novell has a lot of cash and they have some decent products that have high switching costs which is keeping them in the game. But they aren't capturing much new business. Basically I think they'll end up getting sold in whole or in parts to Oracle, IBM or HP after the hedge fund is done stripping out all the cash from the company. Novell likely has undervalued assets that are worth more separately than together.

        Disclosure: I am an accountant and I've worked on due diligence for the sales of companies.

        • Re: (Score:2, Informative)

          by wintercolby (1117427)
          Novell really needs to ramp up their marketing, a la the Goldfish/David Bowie "Change" commercial. SuSE is a solid product with a much more mature configuration interface than RedHat, at much lower support contract fees. It is used in quite a few large organizations which I am not at liberty to discuss (non-disclosure agreements and what-not.) They are in the best position for Active Directory/Linux integration products, and would do very well to very broadly advertise their companies new direction.

          I h
          • by dave562 (969951)

            It is used in quite a few large organizations and governments ... like the state of California.

          • by Rysc (136391) *

            Novell really needs to ramp up their marketing, a la the Goldfish/David Bowie "Change" commercial. SuSE is a solid product with a much more mature configuration interface than RedHat, at much lower support contract fees.

            I'm sorry, you must be new to Novell. They had a solid, superior product called Netware, too. Then they had a solid, superior product called NDS (and later called eDirectory). Then they had a solid, superior product called ZenWorks for Desktops. Every time they hit their mark on the technical, being as good as or better than the competition (and usually sooner to market) but then totally fail to market it, advertise it, and advocate it.

            The history of Novell for the last decade and a half is a history of mis

        • Re: (Score:1, Funny)

          by Anonymous Coward

          I actually researched Novell as a possible investment about 5 years ago and came to the conclusion that the company was in a slow death spiral. Not an inescapable one but I don't see them doing anything that gives me confidence they could escape it and their stock price hasn't budged since then.

          Maybe they can license some more patents from Microsoft?

        • by PCM2 (4486)

          Basically I think they'll end up getting sold in whole or in parts to Oracle, IBM or HP after the hedge fund is done stripping out all the cash from the company.

          Of the three, my bet would be HP.

          Oracle just bought Solaris, and so far it has been happy letting Red Hat do its Linux distribution packaging for it. A while back, Oracle was busy buying up some of the smaller competitors for Novell's identity management business, so it doesn't need Novell's stuff too. Novell's legacy NetWare business would just be an albatross.

          Similarly, IBM probably doesn't see much in Novell's proprietary software portfolio that could fill any major gaps in its own. And IBM has said repe

      • I think it is more like...anytime anything happens related to the shares of a public company, there is going to be at least one law firm filing suit.

        It is mostly filed just in case something bad happens with the deal and there is a big class action suit with the shareholders (and by filing early they have a better shot at being lead plaintiff)

    • Re: (Score:1, Flamebait)

      by N3tRunner (164483) *

      Yeah, the offer isn't ripping anyone off. Novell is worth practically nothing as a company, they don't really have products that anyone is interested in purchasing anymore. Maybe for headhunting purposes their programmers are worth something?

      That lawsuit seems way off base though. I've owned Novell stock for years and this buyout is a real blessing.

      • by Anarke_Incarnate (733529) on Wednesday March 03, 2010 @10:09AM (#31345704)
        You MUST be dense. Novell has SUSE Linux, which is the preferred Linux to run on Z series. The consulting services alone for such a venture would be pretty expensive, but worth every penny. SLERT is used by some of the best brokerage houses on wall street and other places as well. They own Ximian, they also have their extensive IDM suite as well as lots of other group and middleware products. The problem with Novell is that they don't market well enough. Given the chance to replace Red Hat with SUSE I would jump at the chance.
        • Re: (Score:2, Informative)

          by neurovish (315867)

          You MUST be dense. Novell has SUSE Linux, which is the preferred Linux to run on Z series. The consulting services alone for such a venture would be pretty expensive, but worth every penny. SLERT is used by some of the best brokerage houses on wall street and other places as well. They own Ximian, they also have their extensive IDM suite as well as lots of other group and middleware products. The problem with Novell is that they don't market well enough. Given the chance to replace Red Hat with SUSE I would jump at the chance.

          No, the problem with Novell is that their products are shit, and their support is even worse. IDM *might* be good, but I don't have enough experience with it to say one way or the other. I wasn't given a chance to replace SUSE with Red Hat, I fought a two year battle for that opportunity, and my enterprise is better for it. I haven't had to fix a server that was badly broken by an update or service pack since kicking out SLES.

          • No argument there. I work for one of Novell's largest customers and we're about 2 minutes down the freeway from their HQ in Provo, UT. We were having some serious Netware issues (we're finally moving to AD this summer because of this crap) and a bunch of us IT geeks drove to their campus and wouldn't leave until we got some real help.
          • Re: (Score:3, Informative)

            by PalmKiller (174161)
            The trick on sles is to do the critical updates first, then the recommended ones if you want after. I can assure you that if you "select all" and update, you will indeed break something in sles, but it is not that the product is crap, it is the nut behind the wheel. It might be good that you went to redhat in your shop though, as it might not be a pretty picture if the hedge fund ends up with sles. I find their support pretty good, and their people bend over backward to help you even if your service cont
            • by Korin43 (881732)

              The trick on sles is to do the critical updates first, then the recommended ones if you want after. I can assure you that if you "select all" and update, you will indeed break something in sles, but it is not that the product is crap, it is the nut behind the wheel.

              So there's an option if used is almost guaranteed to break something, but the it's the user's fault for thinking that updating is safe?

              • Well, no not really. It has the updates it recommends selected. If you do that then go back in, it will then have the rest selected. It does have a "select all" button, but it does warn you that it might not be a good idea to use it.
          • I've had YUM arbitrarily uninstall 600+ packages during an update on an RHEL 5.3. I don't mean to snub your anecdotal evidence with my similar anecdotal evidence, but I've seen SuSE to be at least as reliable as RedHat, and both more reliable than Windows.
    • by Fnkmaster (89084) on Wednesday March 03, 2010 @09:54AM (#31345442)

      The share price jumped *because* of the takeover offer. The market valued the company at less than the takeover offer until the offer came in. There's nothing inherently wrong with a fund offering to buy out the minority shareholders if they think they can see a way to make the company worth more by owning it all themselves (perhaps they intend to break it up and sell the products off to people who would value them more highly in their enterprises, perhaps they just think management sucks and the best way to replace them is to take over the firm in its entirely, then flip it to a private equity firm or strategic buyer).

      The point is the market was already saying the enterprise value of Novell was less than $1B. Some guy who runs a fund thinks that's overly pessimistic and made an offer to buy out the firm.

      The fact that the market price for the shares jumped higher than the offer price only means that the market, on average, thinks this is the first offer in a potential bidding war and the price is likely to go higher than that before a deal closes. That is also very common in the case of an unsolicited offer when nobody was thinking "this company is for sale" prior to that offer coming in.

      BTW, nobody in the finance industry really thinks the market always offers a fair estimate of a company's worth to all potential owners. Even believers in the weak-form efficient market hypothesis wouldn't state that - they would acknowledge that the value to a private market buyer might be higher than the public market value, which more likely represents the market's estimate of future discounted cash flows to equity owners of the company. Actually, to be more accurate, the public market value represents a consensus estimate of what people think *other* people would estimate the future discounted cash flows to equity owners of the company would be.

      If you find that confusing, welcome to the science and art of valuation.

    • by khallow (566160)

      A law firm is already investigating 'potential breaches of fiduciary duty and other violations of state law in connection with an alleged unfair takeover.' Basically seems to allege that should this deal go through, it would be unfair for current long time shareholders of Novell as Elliott's takeover would be underpaying and ripping them off. I'm not sure if this is standard operating procedure or not but one would think that the stock market would offer a good estimate of Novell's true worth. Apparently someone thinks 20%+ on top of that is unfairly low.

      They're probably looking to get a piece of the action. A lawsuit like that might be able to hinder a takeover and there's at least $2 billion involved. Even if they just get $1 of every $1,000 in play, that's $20 million.

    • Re: (Score:2, Troll)

      by Hurricane78 (562437)

      All stock market prices are by their very definition imaginary and unrelated to the true value. That’s the reason that we have a bursting bubble every 30 years. Scientifically it’s even proven, that in a market that does not deal with physical goods, there must be a bursting bubble about every 30 years.

      So the whole question is pointless.

    • by JTsyo (1338447)
      It would be funny if the hedge just sold of it's shares for a 30% profit. That would probably raise a few flags though.
  • Novell's stock was up above $6 this morning, and I finally unloaded that sucker. Why would people be buying at above $6 when the buyout offer is $5.75? I guess people enjoy losing money.

    • same thing happened when MS did a bid for yahoo. I'm not sure who was the bigger biden -- new shareholders that bought at the top or old shareholders that didn't cash out when they had a chance.
    • They're hoping for a bidding war with another software company to drive up the price of the shares further.

      I'm curious who would want to buy them, though.

    • Why would people be buying at above $6 when the buyout offer is $5.75?

      Several reasons. Some of it is very likely a short squeeze [wikipedia.org] which often happens when a stock suddenly appreciates significantly. Also there probably is some speculation that the final price will be a bit higher. I'd expect the price to quickly settle at just at or under the offer price.

    • If there is an offer of $5.75 then this defines the minimum value of the stock. Someone is definitely willing to pay $5.75 for it. Other people may be willing to pay more, but there's no point selling to anyone who would pay less because you can definitely make more. People buying at above this value think that the offer is too low and that there will eventually be an offer that is higher than the current trading price. The initial offer was $1/share above the market price. The market price then climbe

  • If I have 5000$ in the bank, I certainly hope that my 'value' is at least 10000$, whatever than means, not being a resalable slave...
    • Depends. If there is Dargaud software, and if there are still people who deem it good software, i.e. if your name has a ring to it, you might well be worth 10k if you only have 5k.

      Names have a value in the business world. People buy $item because it is of $brand.

      • by AvitarX (172628)

        What I find funny is how low Novell's name has fallen (Nortel and Norton both being the subject of posts).

        • Novel used to be the synonym for sensible networking. You wanted to have a reliable network architecture, you got a Novell server. Things sure have changed in those last 20ish years.

          Then again, the same applies to a lot of brand names that grew and waned over time. Mercedes used to be a synonym for a very reliable car. Sony used to be a name associated with reliable consumer electronics (the ancients here might remember). Lego used to stand for toys that are limited only by your imagination. Maxis used to b

    • If I have 5000$ in the bank, I certainly hope that my 'value' is at least 10000$, whatever than means,

      Let me take a semi-serious stab at this for ya. If you have $5000 "in the bank" that means that you're getting a return of, at *most*, 3% per year. Someone who can do math might look at that and say "Hell, Paychex freakin common yields over 4%, I can do a lot better with that money than this fool" and offer to buy you out to get his hands on the caysh.

      Ok, ok, I admit, it's not going to happen to you or
  • by Rik Sweeney (471717) on Wednesday March 03, 2010 @10:00AM (#31345548) Homepage

    Where the hell did they get that kind of money? I guess that even during a recession people still need their hedges pruned and their bushes trimmed.

    • I'm trying to figure out how in the hell Novell has 900 million dollars in available cash! They must be selling a ton of SuSE support contracts and Platespin licenses in order to bring in that kind of money!

      • by mrfantasy (63690)

        Novell's basically had $1B cash for over a decade now, and through several acquisitions (SUSE, Ximian, Platespin, others).

        I think $1B for the rest of the company is a low bid. Again, it's worth more in pieces, which I would guess would be the primary interest of the hedge fund. They're not delivering much shareholder value with a bid $1 above the current trading price--the stock has fluctuated that much in the past few months. The letter implies they intend to grow the company, but that wouldn't provide

    • I, for one, welcome our trimmed bush ladies.
    • I am imagining (without looking at either financials) that they are planning to buy it wit a whole ton of leverage and then raid the available cash and future income streams to pay down their debt.

      That is usually about how this works and an example of reasons why having a big pile of cash (vs investing in capital or paying dividends) can be risky for a company small enough to be picked up easily.

    • Money doesn't grow on trees, after all.
  • by blind biker (1066130) on Wednesday March 03, 2010 @10:28AM (#31345974) Journal

    Novell has been taking good care of Suse Linux. Since Novell bought them, they continued working on what I think is the best Linux distro, without hindrance, boosted their marketshare and helped in giving Linux a corporate-friendly image. I hope the new owners of Novell (should such takeover really take place) will have a hands-off approach and let things chug along nicely, as they have been.

    • Yes, and sles is pretty good on the enterprise side of things...though I really don't think you get much extra for your dime besides support. I would like to mention that sles + oes2 (netware on linux) is pretty darn good from a file server standpoint...much better than a windows based solution for serving files to windows clients.

      They really do need to work on their xen tools that come with sles though...you would think they would give some goodies from their platespin product for management instead of re

    • A hedge fund taking a "hands-off approach"? Dream on.

  • by alen (225700) on Wednesday March 03, 2010 @10:34AM (#31346054)

    if they do the normal "private equity" deal what is going to happen is they will buy the company and then "lend" it money from another one of their legal entities along with declaring special dividends. that cash is going to leave Novell and go into the hedge fund. a lot of people will be fired to free up cash that will go to the hedge fund. Once the IPO market becomes better they will sell the company to someone else or if Novell goes belly up they will write it off for the tax benefits.

    i just had a chat with a sales rep and the big thing to sell this year is services. everyone is trying to sell services. probably because there is no more profits in hardware since everything is commodity. Services are high margin products and very cash rich. you pay some guy $40 an hour and pimp him out for $200 an hour.

    • by swillden (191260)

      Services are high margin products and very cash rich. you pay some guy $40 an hour and pimp him out for $200 an hour.

      Interesting perspective.

      From my perspective, services are a moderate-margin business at best. Your 40/200 example is extremely optimistic. For $40 per hour it's pretty tough to find people who have the technical skills to do the job, the people skills to work effectively with customers and are willing to do the required travel. Don't forget about benefits, either. Then there's overhead. You need salespeople to sell the services contracts, deployment managers to staff them, administrative staff to han

  • by ErichTheRed (39327) on Wednesday March 03, 2010 @10:39AM (#31346112)

    Anyone who's been a systems administrator for many years has probably dealt with Novell at one point or another in their career. Before Windows NT came on the scene, NetWare was pretty much THE PC file-and-print server solution. I remember one of the good things about it was that it was lightweight - command line UI, simple admin tools. Microsoft brought back this idea of command-line-only server consoles with Windows Server Core in the last version. Novell also has some pretty neat tools like ZenWorks. That said, it's interesting to see this potential deal on the table. Even 10 years ago, you'd never see Novell ready to throw in the towel.

    I wonder why their acquisition of SuSE and the interoperability initiative with Microsoft didn't change their fortunes...they had a good plan for migrating all their NetWare customers to Linux. I know NetWare is still heavily used in European companies and in the health care sector, so you would think they have a willing customer base to pay the bills with. I guess they couldn't compete with Red Hat for distirbutions and IBM for support services in the Linux world.

    It's a good lesson though -- no matter how much of a market dominator you are, you're always a few steps away from being destroyed.

    • by alen (225700)

      i remember 10 years ago i had to move about 300 people's data from a Novell file server to a Windows NT server. we divided the task between myself and a UNIX/Novell admin. It took me 3 hours using all the mouse/keyboard and GUI shortcuts i knew. This guy spent 3 days writing a script that ran for 30 minutes to copy the data.

      i still deal with UNIX people sometimes and they want to write scripts for the simplest things that Windows will let you do in a GUI in seconds

      • by rs232 (849320)
        i still deal with UNIX people sometimes and they want to write scripts for the simplest things that Windows will let you do in a GUI in seconds

        Yea, these uNIX people don't know nothing .. but how long did it take you to read this one hundred page document [microsoft.com]. And what would a 'UNIX/Novell admin' be even doing migrating to a Windows box. And why can't you type the personal pronoun in upper case. It gets curiouser and curiouser .. :)
      • This tells me that a) you're good at doing extremely repetitive work and b) he probably wasn't very good at writing scripts (yet). However, the next time a similar job comes around, you'll still take the same time, while he can either simply re-use his scripts or write a new one within a shorter time because he hopefully has learned from past experience.

      • by fritsd (924429)

        i remember 10 years ago i had to move about 300 people's data from a Novell file server to a Windows NT server. we divided the task between myself and a UNIX/Novell admin. It took me 3 hours using all the mouse/keyboard and GUI shortcuts i knew. This guy spent 3 days writing a script that ran for 30 minutes to copy the data.

        So what you're saying is, if you'd have a similar situation but with 30000 people's data, it would cost you 2 months and give you RSI, and it would cost that Unix guy 3 days work + 2 d

      • By all means, deploy your GUI tools on 3000 servers and have them all automate. Many people can type faster than they can click this, and this and this, as well as check for logical conditions that the GUI may not have considered.
      • by h4rr4r (612664)

        And his was probably tested and known to work, yours was just clicky clicky.

    • by Acer500 (846698)

      Anyone who's been a systems administrator for many years has probably dealt with Novell at one point or another in their career.

      And Novell NetWare was ROCK SOLID as a file server. I have good memories of that. OTOH, it was basically not very flexible, and GroupWise sucked when last I saw it.

      • by Techman83 (949264)
        It didn't try to be a jack of all trades and master of none. It did what it did, exceptionally well. Groupwise was an exceptionaly stable/scalable product, it's just anything below version 7 of the product looked ancient and lacked pretties. Even then it did everything far better then Outlook, except HTML tended to bork it, but usually that was the very broken HTML outlook spews (can't really hold Novell responsible for that). Recent versions of the client have strived to bring it in to the 21st centuary, b
  • I heard a story on NPR about companies that use leverage to buy out companies with a good name, and somehow have the company they are buying go deeply into debt to finance it. The company cuts costs like mad to quickly come up with the cash to pay off their huge debt, cutting things that were substantial to what earned them a good name. ( the example was matress companies moving to one sided matresses which don't last as long to cut costs, destroying their reputation for producing products that last. Bu

  • J.K. Rowling is raking in the bucks, but this is ridiculous!

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