Will Novell Finally Be Acquired?

In more than two decades of following Novell, I've had many conversations with experts about who might someday acquire the company. In my mind, it was never a question of "if" but "when" Novell would be snapped up. But the company just chugged along.

Could that acquisition finally be arriving?

New York-based hedge fund Elliott Associates LP on Tuesday made a bid for Novell for $2 billion -- a 49 percent premium over Novell's share price Tuesday night before it catapulted yesterday by 28 percent. Elliott already holds an 8.5 percent stake in the common stock of Novell. The hedge fund was vague about its intentions with Novell but believes the company is underperforming.

Indeed, Novell has underperformed compared to key rivals Red Hat, Microsoft, Citrix Systems and IBM, wrote Anders Bylund, an analyst and contributor to The Motley Fool. But what will a hedge fund do to turn the company around? Potentially chop it up and sell off the pieces? Might another player -- such as one of its rivals -- be able to add value to its offerings?

"Over the past several years, Novell has attempted to diversify away from its legacy division with a series of acquisitions and changes in strategic focus that have largely been unsuccessful," wrote Elliott portfolio manager Jesse Cohn in a letter to Novell shareholders. "With over 33 years of experience in investing in public and private companies and an extensive track record of successfully structuring and executing acquisitions in the technology space, we believe that Elliott is uniquely situated to deliver maximum value to the company's stockholders on an expedited basis."

Elliott declined to elaborate further and it remains to be seen if a bidding war emerges.

Novell was once a kingpin in the software industry. Its founding CEO, the late Ray Noorda, was a legend in the 1980s and early 1990s, and was perhaps best known for coining the term "coopetition."

Once Microsoft's nemesis, Novell was the first major player to provide the technology for enterprises to interconnect their PCs. These days, though, you'd be hard pressed to find an enterprise of any size still relying on Novell's NetWare.

After a failed bid to acquire Lotus in 1990, Novell later acquired WordPerfect, ultimately selling most of those assets to Corel. The one vestige of WordPerfect still owned by Novell is the technology that is now the basis of GroupWise, also a minor player in messaging compared to Microsoft Exchange and Lotus Notes.

These days, of course, Novell is best known as the No. 2 Linux distributor. But it also has virtualization, systems management, identity management and services offerings.

And ironically, Novell today is a Microsoft partner as Noorda's philosophy of coopetition has come full circle -- much to the consternation of many in the open source community.

How important is Novell's fate to your business, and what are the implications of where the company ends up? Drop me a line at [email protected].

Posted by Jeffrey Schwartz on March 4, 2010