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Interesting.DJ Novell Shares Jump, Surpass Hedge Fund's Offer Price

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lightbeam   Wednesday, 03/03/10 10:13:37 AM
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DJ Novell Shares Jump, Surpass Hedge Fund's Offer Price

By Kerry Grace Benn

NEW YORK (Dow Jones)--Shares of software company Novell Corp. (NOVL) surged Wednesday, topping an offer price announced late Tuesday from hedge fund Elliott Associates LP and sparking speculation another software company or hedge fund could step in with a higher bid.
Elliott, which disclosed it already holds an 8.5% stake in Novell, offered to buy the rest of the company for about $1.8 billion, or $5.75 a share. Shares were recently up 26% at $5.97 on heavy volume. The stock is up 43% so far this year.
The hedge fund, which began actively acquiring shares Jan. 5, said in a letter to Novell's board that it believes the stock has "meaningfully underperformed all relevant indices and peers" as the company attempted to diversify away from its original business with a string of acquisitions and changes in focus "that have largely been unsuccessful."
Novell has said it will review the offer.
Like many of its peers, Novell - which works with open source and proprietary software - is trying to control costs as revenue has fallen. The company has been trying to boost the presence of its Linux-based operating system, Moblin, in low-end netbooks, which have become very popular.
But analysts seems skeptical that Elliott's offer will get the job done.
Benchmark Capital analyst Brent Williams wrote in a note to clients, "We think this particular deal won't close. ...We think taking the company private to sell off the parts won't create much value for Elliott, and we think the fund doesn't have enough experience to operate such a complex business itself."
If a deal does get done, Williams said, it probably won't look much like Elliott's initial offer, since most of Novell's problems are structural, not management-related, so replacing current management wouldn't be likely to change the company's trajectory quickly.
"We believe that investors should be set for a long battle, which we ultimately believe will end up at best at a stalemate with Elliott taking one or more board seats and remaining in a holding pattern," Williams said.
Cross Research analyst Richard Williams said the stock has turned from sleepy into a riveting soap opera. In a nutshell, he said, if Oracle Corp. (ORCL) succeeds with its acquisition of Sun Microsystems Inc. (JAVA), which should be determined in a few months, other big tech companies are going to have to react because they'll need to come up with ways to integrate hardware and software like Oracle has been doing.
Elliott is either lucky or smart to make a bid now before Oracle is successful, because if it is, Novell could be worth $8 to $10 a share, he said. "Now it turns into a soap opera because Novell management has to find a way to stall until word comes out from Oracle" - which of course will be trying to keep things quiet so it can gain more market share, he said.
ISI Group's Abhey Lamba said it looks like management will negotiate with Elliott to get a higher price or there will be a bid from another entity, though he said it would more likely be a private equity firm than another large company.
The Linux business could be relevant to other companies in light of the Oracle-Sun tieup, but it would be tough for a strategic buyer to make use of all four of Novell's different businesses, Lamba said.
Broadpoint Amtech's Bradley Whitt said it's time for someone to acquire Novell, though he's not sure how its Linux business, which would be attractive to big tech companies, would be valued, since a big driver of the business has been its relationship with Microsoft Corp. (MSFT), which has been slowing sharply.
Whitt said he wouldn't be surprised to see Novell not take the first offer out there. The Elliott offer might create a sense of urgency for a bigger software company that might be interested in some of Novell's assets.
Last week, Novell reported its fiscal first-quarter profit surged 89% on higher margins and fewer charges, though its revenue declined 5.8%.

-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; kerry.benn@dowjones.com
(Kathy Shwiff contributed to this article.)

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=ZFvZhHdDeMBVOMFOL6XyoQ%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires
March 03, 2010 09:59 ET (14:59 GMT)
Copyright (c) 2010 Dow Jones & Company, Inc.- - 09 59 AM EST 03-03-10

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