Novell turns down unsolicited offer: What's it worth and who's buying?

Novell turns down unsolicited offer: What's it worth and who's buying?

Summary: Novell has rejected a $2 billion unsolicited offer from Elliott Associates on the rationale that the buyout proposal "undervalues the company's franchise and growth prospects." So what's this company really worth?

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Updated: Novell has rejected a $2 billion unsolicited offer from Elliott Associates on the rationale that the buyout proposal "undervalues the company's franchise and growth prospects." So what's this company really worth?

Elliott Associates offered to buy Novell for $5.75 a share, but the offer was conditional. Novell said Saturday that it will review "various alternatives to enhance stockholder value," but that the Elliott offer on the table didn't work. Novell's alternatives include partnerships, dividends, stock buybacks and a potential sale of the company.

In a statement, Elliott Associates said it was pleased that Novell was selling the company and would continue its quest to buy it.

Novell noted that it is committed to enhancing value for shareholders. Here's the 10-year chart that would make even the biggest Novell fan wonder about shareholder value:

Let's face it. Novell is a cash-rich slow---or no---growth company. Novell has a legacy business---NetWare, Groupwise---that still produces nice cash flow via maintenance revenue. But where's the growth?

Novell's SUSE Linux business can show growth, but it runs into the market leader---Red Hat.

Simply put, it's a positive sign that someone wants to take out Novell, but the company is right to question Elliott's motives. The Elliott Associates deal isn't what it appears. Elliott Associates offered to buy Epicor in 2008 at $9.50 a share, but then lowered its bid to $7.50 a share. Elliott in November 2008 terminated its bid. Why would Novell risk a repeat performance from Elliott?

Elliott Associates' conditional offer values Novell at 1.2 times enterprise value and 19 times calendar earnings per share, according to Piper Jaffray analyst Mark Murphy. The total enterprise value of Novell was $1 billion (the company has about $1 billion in cash). "Due to Novell's declining legacy business and challenged competitive position, this marks a discount to our enterprise software group," said Murphy. The wild card in the Novell offer is whether Elliott would stick to its bid.

You can easily argue that Novell should be discounted relative to its peers, but the question is by how much.

Novell's financial results all kind of blend together. Ho-hum quarters with a dash of flattish at best revenue.

And the annual results:

As for Elliott Associates, the investment firm may have already accomplished its goal, which was to put Novell in play. Elliott Associates isn't known as an operator so it's unclear how serious it really is about buying Novell outright.

Will Novell find another buyer or white knight? It's unlikely.

"Over the last two years, we have been questioned by both private and public companies about Novell but it has been over 9 months since we've had this type of inquiry," said Jefferies analyst Katherine Egbert in a recent research note. "This leads us to believe that there is no active process to sell the company at the current time. We don't see a natural buyer. But any large software or systems vendor with a track record of successfully stripping costs out of a low-growth company or whose business model consists of low-growth maintenance revenue could be interested."

Other analysts go along with that assessment. Benchmark analyst Brent Williams said that Novell's problems are structural and the only way it can turn around is to spend on sales and research and development to keep customers from leaving legacy products like NetWare and win new business.

Add it up and Williams noted that Novell is a multi-year fix-it project. It's doubtful any acquirer has the patience.

Topics: Open Source, Banking, Enterprise Software, Hardware, Operating Systems, Servers, Software

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13 comments
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  • Aw, the little "plan" didn't work.

    And here I thought they were going to force Microsoft's hand. Pffttt... silly boys.
    No_Ax_to_Grind
    • you missed the grand plan

      that M$ was financing Elliot to subminate Linux,Netware and OSS.
      Linux Geek
      • Where do you get such good drugs?

        ?
        No_Ax_to_Grind
      • Such a poor memory you have.

        M$ is doomed
        Even the due diligence process could threaten Microsoft. Singer is going to get a look inside that 2006 agreement.
        Now the FUD and fraud called Linux patent infringement will be exposed, and M$ will lose the extorsion fees. Linux Geek
        No_Ax_to_Grind
  • Sure..."we're worth billions more"...NOT.

    http://itmanagement.earthweb.com/osrc/article.php/3851161/Novell-Earnings-Falter-as-It-Preps-Workload-Management-Vision.htm
    IT_Guy_z
    • Novell acted too late...

      The referenced article makes reference to the acquisition of PlateSpin. In the earlier days of VMware ESX, PlateSpin had an effective P2V product, although it could be expensive. By the time Novell had acquired them, the native VMware tools had improved to the point that PlateSpin was no longer such a play compared to what an administrator could get for free.

      Novell has a poor track record of identifying where the market was going and planning a strategy to be on the spot with effective product offerings.
      Uber Dweeb
  • What Novell needs is marketing...

    the likes of Microsoft. I've seen how secure their server ware is, and I am impressed. Many schools use it in the area, and do not have malware or problems with vulnerabilities taking over the LAN environment.

    What they need is marketing; this would set Redmond off balance if they implemented it right. I'm glad they staved off this attack so far, as I have hopes for this company. They do need to get off their laurels though.

    No one can survive that way very long in this economy. The robber barons, will eat them up piece-meal.
    JCitizen
    • Heartily agree!

      We have run Netware at the college I work at for well over 15 years. I'm no Microsoft hater, but our Netware boxes are significantly less maintenance. Account management and our domain's OU structure is also easier to manage and more robust. But, the greatest weakness is their response to new technology. Sure the legacy systems are rock-solid, but sync an iPhone with Groupwise and you have a battle. If Novell doesn't show some results soon, our managment is going to drop them for a primarily Windows server environment.
      ealexander@...
      • I hear you there..

        and sys_engineer has a good post too!
        JCitizen
  • RE: Novell turns down unsolicited offer: What's it worth and who's buying?

    I'm not sure if it is the blog writers' fault, or the
    fault of Novell 's marketing, but there is rarely to
    never an author of a piece like this that even
    approximates describing the modern business model of
    Novell. Netware, as NetWare has been gone for about 3
    years. You can get all the "NetWare Services" (file,
    print, authentication, etc) on Linux without
    reconfiguring the clients at all. Novell's Identity
    and Access Management products are market leaders, and
    have shown growth year of year since they were
    available. The problem is to get analysts to start
    talking about these products, and to stop talking
    about NetWare. Novell has many customers that are
    "tried and true" Microsoft / AD customers that have
    their entire Identity and authentication
    infrastructure built on Novell IAM product suite, and
    very few people in the organization even know it
    because their products just work, and overcome the
    crippling limitations of a typical MS-AD
    infrastructure. Oh well!
    SledDog
  • When Are You Retards Going to Get It?

    Lack of malware infections != More secure. This is the same argument iTards have been making for ages. Malware creators are out to scam people or make money, so they go after bigger targets.

    Look at what has happened to Firefox. Now that it has soared in popularity, we see that it's just insecure as Internet Explorer (if not more so). Why? Marketshare.

    Windows is a gold mine, Linux is a piggy bank.
    jmarkovic32
  • RE: Novell turns down unsolicited offer: What's it worth and who's buying?

    Wouldn't it be hard to put a value on some of that code? I mean Netware used to be the #1 networking OS, and was pretty rock solid from what I understand, so its hard to say if Novell is worth this $2bill or if they are worth more. I'm just going to sit back and see what unfolds.
    Loverock Davidson
  • What Novell needs is sanity (and perhaps quality) control.

    Let's face it, after NetWare, what has Novell done
    well?

    Novell slaughtered the management of Suse, Zenworks is
    buggy and bloated. Incorporating Mono into Zenworks?
    Why? Because it was cool? Silly.

    Don't get me started on how buggy the flagship product
    called eDirectory is on Linux. Used to be great, which
    I'm sure it is still a better offering than most other
    directories, AD may actually be more stable. I'll
    avoid the specifics, but I'll say as long as you take
    outages all the time, you'll be fine.

    It seems like Novell off-shored development to a team
    that Novell (at least technically savvy people there)
    didn't control. The issue appears to be the off-shore
    developers apparently have no stake in the success of
    the product, so the developers don't care if Novell
    succeeds or not and it shows to their customer base.

    Another great old company is in a downward spiral. I sincerely hope they pull out of it soon.
    sys_engineer