Novell Says ‘No’ but Elliot Hears ‘Maybe’

New York hedge fund Elliott Associates is in hot pursuit of Novell, and developments have left some worrying that an acquisition, if successful, would mean the end of Suse Linux.

On Monday, Novell’s board of directors turned down a March 2 offer of US$2 billion for the company from Elliott Associates. It said it is seeking other alternatives, including joint ventures and, possibly, purchasers.

Elliott Associates’ response was to pledge to continue its wooing.

Elliott Gets Little Love

Elliott Associates and its sister company, Elliott International, together own 8.5 percent of Novell’s common stock. Elliott offered $5.75 per share for the rest of Novell’s stock on March 2. This sum was 49 percent above Novell’s enterprise value at the time.

The bid sent Novell shares up, but the company’s board rejected the offer as undervaluing its franchise and growth prospects.

Novell’s board also authorized a review of various alternatives to enhance stockholder value. These include a stock repurchase or cash dividend, strategic partnerships and alliances, joint ventures, a recapitalization and selling the company.

The bid from Elliott Associates might get some support from Novell’s shareholders. Novell is sitting on a $1 billion pile of cash, and net income jumped 82 percent year over year in the first quarter, from $11 million to $20 million. However, net revenue fell 6 percent from $215 million to $202 million. Profits went up and sales went down, but the increase came from a reduction in operating expenses and from expense management.

That means Novell’s basically slashing costs and is not making any headway in the market. These are not results that will please shareholders.

Novell’s announcement that it will look for other options, including a sale, sent its shares up 25 cents to $5.89 at close.

Elliott took the rejection in stride, announcing it will continue to pursue Novell.

Novell’s Newfound Pizzazz

Novell has been on the hop for the last few months.

Back in November, the company announced it will beta Pulse, its real-time collaboration platform. Pulse will interoperate with Google Wave. It will be available in the first half of the year.

In an attempt to prod its sales force, the company has implemented a management by objectives solution from Callidus. Management by objectives is a process whereby management and employees agree on certain goals for an enterprise and work toward them. This initiative was announced March 19.

On Monday, Novell announced the availability of a new ZENworks configuration management virtual appliance, ZENworks enhancements to help customers migrate to Windows 7, and a technology preview of ZENworks 11.

Also on Monday came news that Novell is working with Dimdim to offer Web conferencing.

Could this flurry of activity be too little, too late, perhaps? Novell wouldn’t say. “Beyond our press release statement, we’re not commenting further,” Novell spokesperson Ian Bruce told LinuxInsider.

Wither Suse?

Novell’s rejection of Elliott Associates doesn’t mean there’s no chance for the hedge fund to buy the company. All it has to do is find a way to get Novell to the table. Elliott has a reputation for persistence and is considered very hard-nosed.

If it does end up buying Novell, what will happen to Suse Linux? Some fear this is the beginning of the end for Suse, but Bernard Golden, CEO of Navica, is more optimistic. “Suse Linux is a very well-respected Linux distro,” he told LinuxInsider. “There’s a customer base, so there’s a future for the technology.”

Suse’s chances look particularly good because it’s open source, Golden pointed out. “Since it’s open source, somebody could step forward and do something with it,” he explained.

What about Novell’s partnership with Microsoft over Linux? What will happen to that?

The two have signed a patent deal and have been collaborating on Linux, particularly in China, but that has ruffled many feathers. Hard-core Linux fans who felt Novell had sold out to Microsoft launched the “Boycott Novell” Web site following the deal.

Elliott Associates spokesperson Scott Taglarino declined to discuss what might result from the hedge fund’s acquisition of Novell, if it happens. “I can’t provide any other comment than what’s publicly provided in our letter of today,” he told LinuxInsider.