Elliott Associates Offers to Buy Novell

[Posted March 2, 2010 by ris]

The New York Times reports that hedge fund Elliott Associates has made an offer to buy Novell. "Elliott said it would pay $5.75 a share in cash for Novell, a price that is 21 percent higher than Novell's closing stock price on Tuesday. Wall Street's initial response to the bid, announced after the stock market closed, was to anticipate the possibility of a higher offer. Novell's shares jumped $1.32, or nearly 28 percent, to $6.07 in after-hours trading." (Thanks to Jeff Schroeder)

See also: Elliott's press release about the offer. "Over the past several years, the Company has attempted to diversify away from its legacy division with a series of acquisitions and changes in strategic focus that have largely been unsuccessful. As a result, we believe the Company's stock has meaningfully underperformed all relevant indices and peers. 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." That suggests some rather significant changes should this deal be accepted.

Elliott Associates Offers to Buy Novell

Posted Mar 2, 2010 23:25 UTC (Tue) by Baylink (guest, #755) [Link] (2 responses)

Oh, yay. I finally have a distro I like, and someone's gonna buy the company and screw with it...

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 0:25 UTC (Wed) by rahvin (guest, #16953) [Link] (1 responses)

There is no guarantee Novell management or shareholders will take the offer. Usually the first offer is considered preliminary and if the board is willing to take the offer the shop it around to see if there is a higher offer. These things are never certain, a single large shareholder could scuttle any offer if they wanted. Based on Novell's history this is going to need to go hostle with Elliot convincing the largest shareholders.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 2:02 UTC (Wed) by stumbles (guest, #8796) [Link]

Oh they will take it... eventually. They will say no this go round (that's my expectation), but it will happen on the second or third offer. Why do I say that? It all revolves around SCO. Oh, wait. Forgot I had my tinfoil hat on... nm.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 0:33 UTC (Wed) by hmvp (subscriber, #54422) [Link] (1 responses)

Looking at the letter form Elliot and the company history from Novell:
http://www.novell.com/news/press/pressroom/history.html
I can only wonder what they mean with "Over the past several years, the Company has attempted to diversify away from its legacy division with a series of acquisitions and changes in strategic focus that have largely been unsuccessful.".

Does that include the microsoft deal or only the acquisitions of Senforce Technologies, SiteScape and PlateSpin Ltd.? In either case it might not be very bad for FOSS. (Although I'm not saying that those acquisitions and the deal where either good or bad for FOSS)

Or do they include everything major Novell has done with Linux? (6 years is still several, right?)

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 16:11 UTC (Wed) by jwarnica (subscriber, #27492) [Link]

hmmmmm... That quote is talking about Elliott working on diversification.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 1:17 UTC (Wed) by BenHutchings (subscriber, #37955) [Link] (14 responses)

"deliver maximum value to the Company's stockholders on an expedited basis"

Translation: apply leverage to make a quick profit, leaving the company bankrupt. (For bonus points, find some fool to sell it to before this becomes obvious.)

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 3:59 UTC (Wed) by ajross (guest, #4563) [Link] (11 responses)

Pretty much, but that's not unusual or surprising. I guess the question in
my mind is what assets does Novell actually *have* that would produce a quick
profit?

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 4:27 UTC (Wed) by littlesandra88 (guest, #64017) [Link] (2 responses)

Word Perfect. The Word Perfect case with Microsoft have never been settled, and is worth billions of Dollars and Microsoft stole Word perfect and abused their desktop dominance with Windows to marked Word.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 9:41 UTC (Wed) by coriordan (guest, #7544) [Link] (1 responses)

Then, couldn't they just offer to buy Word Perfect?

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 15:25 UTC (Wed) by butlerm (subscriber, #13312) [Link]

Word Perfect was sold to Corel almost fifteen years ago. Did Novell actually
sell off the software but retain the legal rights to pursue some sort of
settlement with Microsoft? And by this time wouldn't the statute of
limitations be up on whatever happened prior? And even then, doesn't
Novell's current relationship with Microsoft imply that any such issue has
already been resolved?

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 5:36 UTC (Wed) by rahvin (guest, #16953) [Link] (4 responses)

They are management heavy and focus to heavily on Legacy and other crap that's not worth the money they spend on it. Elliot is a hatchet man. They come in clean up the fat, streamline the company, focus the work on the profitable or growing markets, sell everything else and then sell it all for a tidy profit.

In a typical purchase like this they will buy the company for $5 a share, clean it up, get it growing and sell it in 2-5 years for $20 a share. Either that or in the case of conglomerate they subdivide the segments of the company and sell each of 3-5 profitable divisions for the $5 the paid for the whole thing. Novell isn't a large conglomerate in too many businesses so they aren't a divide and destroy purchase. My guess is they have been through some heavy analysis of Novell's finances and see a lot of potential. Maybe it was the recent revelation that they are near to being profitable again even with declining revenue from the MS transaction indicating a growing Linux service market and that severing the legacy stuff and focusing on Linux will be far more profitable. Either way they believe Novell is worth significantly more than it's being traded for and they believe that a good chunk of that lack of value is management caused and can be fixed.

As I've mentioned before I live in Utah and I can say Novell has been playing games with employment for years to cook the financial books. They lay off employees and immediately hire them back through a temp agency they are affiliated with. It's a game they play to announce layoffs to get a stock boost then not actually get rid of anyone in reality. That type of behavior screams mismanagement and usually ends up in one these private equity hatchet companies coming in and fixing the real problem (management). The strategy will be fire all the upper management, gut the middle management and flatten the organization. Novell certainly needs some of that, they still have a management structure from when they were selling Netware. In fact I see Novell's biggest problem is that they still think they are a Netware company and are still trying to get that business back.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 12:58 UTC (Wed) by SEJeff (guest, #51588) [Link] (1 responses)

But do you think the Novell has a chance against a company who already is lean
and mean? Do you think Novell has a chance against Redhat? I don't.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 13:26 UTC (Wed) by DYN_DaTa (guest, #34072) [Link]

Seeing the actual leadership, innovation, acquisitions, contributions, services, products, market share (in all segments) and the real value of Novell and Redhat, the answer is no: Novell hasn't *any* chance against Redhat.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 18:42 UTC (Wed) by BlueMars (guest, #64038) [Link] (1 responses)

What rhavin said (They are management heavy etc.) is a good summary of what is always said in one of these buyout attempts. In general, the reality is very different: the buyout target has been trying to position itself for long-term profitability and thus has not maximized its short term profit. The hedge fund simply reverses this policy and stops all investment in the company's future, thus slashing expenses, thus generating a spike in profits. Then they sell the hollowed-out shell to idiot investors who do not look beyond the current profit trend. Thus, Elliot Associates' comment means they would shut down (or sell off if they can) all of Novell's diversification projects, particularly including SUSE.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 20:57 UTC (Wed) by rahvin (guest, #16953) [Link]

You are far to skeptical of these private equity firms. Yes what you said could happen but have you ever looked at Novell's product line and sales? They still spend enormous resources and effort producing and selling Netware (it even runs on top of SUSE), Groupwise and edirectory. I doubt they even make money on any of those products but they spend enormous resources on them. My Guess is Elliot sees SUSE as Novell's only long term profitable division and that they see an opportunity to come in a gut the Legacy products and spin them off as a separate company or sell them and clean Novell up. IMO the Legacy products have been holding Novell back, as another poster has mentioned they still generate revenue and they would get slaughtered on wall street if they came in and gutted the divisions because the long term value isn't there.

Personally I don't agree with your assertion (and others) that Elliot is only looking at short term value. With a shareholder buyout they will be taking the company private, they won't be interested in short term gains, they will be looking for long term value so they can either sell the company or take it public in 5 years or so. My guess is the transaction will result in a company that is far more like RedHat in it's focus on Opensource software and eliminate the wasted resources on products no one wants anymore.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 9:35 UTC (Wed) by rodgerd (guest, #58896) [Link] (1 responses)

Mainframe customers. SuSE is dominant in this space, and much, much cheaper than RHEL on headline licensing cost. Enough that they could literally double their prices, comfortably. Hell, they could probably quadruple them, and people wouldn't be able to migrate away (although it would cost them new sales), given the cost of rebuilding the world, as it were.

Novell's patent deals with Microsoft could also be exploited with legal action against Red Hat and/or Canonical.

Elliott Associates Offers to Buy Novell

Posted Mar 4, 2010 21:11 UTC (Thu) by jspaleta (subscriber, #50639) [Link]

I'm not sure Novell has standing to initiate legal action with regard to the patents associated with MS. If there is going to be legal action I think MS has to initiate it. Elliot/Novell would certainly benefit in the short term during the ensuing active shooting war as a safe harbor for customers...but they'd have to goad MS into initiating the legal action. Not sure Elliot has that kind of pull.

-jef

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 15:15 UTC (Wed) by hingo (guest, #14792) [Link]

I think you and this comment thread got it backwards. The "expedited maximum value" to shareholders would come from the shareholders selling to Elliot.

What Elliot then does with Novell is of course an interesting question, but this is not what is speculated in the press release. Usually the benefit for a company like Novell in going private would be that they could more aggressively leave the legacy business behind and focus on Linux, since a private owner wouldn't care if there is 2-3 quarters of bad results due to such a move. Being publicly traded otoh you're kind of stuck with your legacy business because shareholders would panic if you suddenly abandon something that still produces revenue. And maintaining the positions in the legacy market then takes a lot of energy and ties up capital that could go into pursuing new businesses instead. (Sun more or less died due to this dilemma too.)

In summary, this kind of move could be liberating and empowering to Novell/Suse Linux, allowing the company to more aggressively recreate itself. Of course, to some extent this is just an investor trying to pick up a low priced company thanks to the economy being down in general, and this doesn't mean anything at all for Novell in particular.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 12:09 UTC (Wed) by nix (subscriber, #2304) [Link] (1 responses)

'Apply leverage' only works if you can get debt financing easily. Easy
debt financing is... not around much anymore. You can get it if you're big
(and not Greece) but not if you're planning to spend it revitalising a
company with the *stellar* prospects of Novell, I'd have thought.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 15:58 UTC (Wed) by iabervon (subscriber, #722) [Link]

I'd guess what they mean by leverage is Elliot Associates putting a bunch of their cash into Novell. A hedge fund with money to invest these days may not trust any of the things they could invest in as much as their own ability to produce a good return by managing a company. (In part, this is the reason that companies can't get loans easily: it's not that there isn't the money to loan, it's that the people who have it don't trust credit ratings)

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 9:18 UTC (Wed) by djzort (guest, #57189) [Link] (2 responses)

one way or another, if you bought novell shares yesterday - youve just made a nice large wad of cash overnight! it could be your best trade ever!

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 13:00 UTC (Wed) by SEJeff (guest, #51588) [Link]

Unless you happened to be a shareholder of vw when porsche did the short
squeeze not so long ago.

Elliott Associates Offers to Buy Novell

Posted Mar 3, 2010 23:08 UTC (Wed) by jengelh (guest, #33263) [Link]

Are certain shares not required to be hold like, at least 6 months? If Elliott squanders away everything before you are allowed to release your share, you're toast.