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Hedge Fund Makes Unsolicited Bid for Novell

A New York-based hedge fund has made an unsolicited bid to acquire Novell Inc. for nearly $2 billion in cash. Novell said Tuesday it will evaluate the offer it received from Elliott Associates LP.

Elliott, which describes itself as a multi-strategy investment firm with over $16 billion in assets under management, already owns about 8.5 percent of the common stock of Novell. The hedge fund has made waves in the IT industry before -- a bid for Epicor Software Corp. in October 2008 briefly raised the stock price before being dropped a month later.

The bid for Novell sparked speculation that perhaps Microsoft, Cisco Systems or Hewlett-Packard Co. may also jump into the bidding, analysts told Bloomberg. Novell’s stock price was up about 27 percent in morning trading Wednesday after the late Tuesday offer.

Novell was the leading provider of network operating systems and network directories in the 1980s and 1990s. But the company lost its dominance to Microsoft, which incrementally baked more networking features into Windows with every new release, obviating the need for Novell's flagship NetWare network OS.  

When Microsoft released Active Directory with Windows 2000 a decade ago, that further hastened an exodus from Novell's networking technology.

In 2003 Novell acquired SUSE Linux for $210 million backed by a $50 million investment from IBM. Novell's SUSE Linux is regarded as the number two provider of Linux behind Red Hat but faces growing competition from Canonical Ltd., provider of Ubuntu, as well as a growing army of alternatives.

Once fierce rivals, Microsoft and Novell partnered in late 2006, agreeing to make SUSE Linux interoperable with Windows. As part of that pact, Microsoft agreed to sell SUSE Linux to those customers who wanted to run both platforms in their organizations. That partnership has also gained prominence as Novell is working with Microsoft to ensure that its Silverlight technology can run on Linux via the Mono Project.

But Novell follows in the footsteps of its larger rival Red Hat, which has a broader portfolio with its JBoss middleware stack and its forays into cloud computing as well.

Last week, Novell said revenues for the quarter-ended Jan. 31 were $202 million, down 6 percent compared with the same period last year. But its profit jumped 90 percent for the period to $20 million after taking a $5 million charge. The company also said it has $991 million in cash on hand.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.

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