Novell mulls hedge fund takeover

Commercial Linux distro and systems software maker Novell said last night, after it had received a takeover deal from a New York hedge fund named Elliott Associates to take Novell private, that it would put out a statement about the proposal. It took nearly four hours to come up with the statement, and the wonder is why.

Here's what Novell said:

Novell, Inc. today confirmed that it has received an unsolicited, conditional proposal from Elliott Associates, L.P. to acquire the Company for $5.75 per share in cash. Novell anticipates that its Board of Directors will review Elliott's proposal in consultation with its financial and legal advisors. J.P. Morgan is serving as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to Novell.

As El Reg explained yesterday, when the deal was announced in the wake of Wall Street shutting down trading for the day, the $5.75 per share deal represents a 21 per cent premium over the closing price of $4.75 per share for Novell's stock immediately before the deal was announced.

But when you do the math and take into account the $991.3m in cash and investments that Novell has on hand, what Elliott is really proposing is to take possession of Novell for about $940m, which would pay for the 91.5 per cent of the company that Elliott does not already own itself or control through affiliates. (Elliott said in its takeover proposal to Novell's board that it started buying up shares on January 5 and had amassed an 8.5 per cent stake in the company already.)

In trading this morning, Novell's shares are up 29 per cent to $6.12 a pop, which would seem to imply that Wall Street expects a sweeter bid to be required for a deal to get done, and possibly other suitors to show an interest.

Elliott's move to acquire Novell could set off a bidding war for the firm, with IBM and Citrix Systems potentially joining in, and maybe even application software maker SAP. IBM could use its own Linux distro and x64 hypervisor as well as the systems management and identity management tools that Novell has taken possession of over the years, and it knows how to ride down a legacy software business like NetWare.

Citrix Systems could use its own Linux distro and some of the physical and virtual server management tools Novell has, too. And SAP, which needs to compete with Oracle with a complete stack of software could also make good use of SUSE Linux and start weaving together a software stack of its own that runs on x64, Power, Itanium, and mainframe iron. ®