Hedge Fund Offers $2 Billion For Novell

CWmike writes "A hedge fund that is already one of Novell's largest shareholders offered on Tuesday to acquire the struggling, cash-rich enterprise software maker for $2 billion. The unsolicited offer, from New York-based Elliot Associates L.P., is for $5.75 per share in cash, a dollar per share more than Novell's closing price Tuesday of $4.75. The offer caused Novell's stock to leap 29% to $6.15 in after-hours trading. Because Novell is so cash-rich — it had $991 million in cash and equivalents at the end of January (PDF) — Elliott says the deal values Novell as an enterprise alone at about $1 billion."

Comments

Re:Already Under Investigation

[Fnkmaster]

The share price jumped *because* of the takeover offer. The market valued the company at less than the takeover offer until the offer came in. There's nothing inherently wrong with a fund offering to buy out the minority shareholders if they think they can see a way to make the company worth more by owning it all themselves (perhaps they intend to break it up and sell the products off to people who would value them more highly in their enterprises, perhaps they just think management sucks and the best way to replace them is to take over the firm in its entirely, then flip it to a private equity firm or strategic buyer).

The point is the market was already saying the enterprise value of Novell was less than $1B. Some guy who runs a fund thinks that's overly pessimistic and made an offer to buy out the firm.

The fact that the market price for the shares jumped higher than the offer price only means that the market, on average, thinks this is the first offer in a potential bidding war and the price is likely to go higher than that before a deal closes. That is also very common in the case of an unsolicited offer when nobody was thinking "this company is for sale" prior to that offer coming in.

BTW, nobody in the finance industry really thinks the market always offers a fair estimate of a company's worth to all potential owners. Even believers in the weak-form efficient market hypothesis wouldn't state that - they would acknowledge that the value to a private market buyer might be higher than the public market value, which more likely represents the market's estimate of future discounted cash flows to equity owners of the company. Actually, to be more accurate, the public market value represents a consensus estimate of what people think *other* people would estimate the future discounted cash flows to equity owners of the company would be.

If you find that confusing, welcome to the science and art of valuation.

Re:Already Under Investigation

[neurovish]

You MUST be dense. Novell has SUSE Linux, which is the preferred Linux to run on Z series. The consulting services alone for such a venture would be pretty expensive, but worth every penny. SLERT is used by some of the best brokerage houses on wall street and other places as well. They own Ximian, they also have their extensive IDM suite as well as lots of other group and middleware products. The problem with Novell is that they don't market well enough. Given the chance to replace Red Hat with SUSE I would jump at the chance.

No, the problem with Novell is that their products are shit, and their support is even worse. IDM *might* be good, but I don't have enough experience with it to say one way or the other. I wasn't given a chance to replace SUSE with Red Hat, I fought a two year battle for that opportunity, and my enterprise is better for it. I haven't had to fix a server that was badly broken by an update or service pack since kicking out SLES.

they are going to rob Novell blind

[alen]

if they do the normal "private equity" deal what is going to happen is they will buy the company and then "lend" it money from another one of their legal entities along with declaring special dividends. that cash is going to leave Novell and go into the hedge fund. a lot of people will be fired to free up cash that will go to the hedge fund. Once the IPO market becomes better they will sell the company to someone else or if Novell goes belly up they will write it off for the tax benefits.

i just had a chat with a sales rep and the big thing to sell this year is services. everyone is trying to sell services. probably because there is no more profits in hardware since everything is commodity. Services are high margin products and very cash rich. you pay some guy $40 an hour and pimp him out for $200 an hour.

Re:Already Under Investigation

[PalmKiller]

The trick on sles is to do the critical updates first, then the recommended ones if you want after. I can assure you that if you "select all" and update, you will indeed break something in sles, but it is not that the product is crap, it is the nut behind the wheel. It might be good that you went to redhat in your shop though, as it might not be a pretty picture if the hedge fund ends up with sles. I find their support pretty good, and their people bend over backward to help you even if your service contract is not in order. What kind of problems did you have with the support?

Re:Fiduciary duty

[wintercolby]

Novell really needs to ramp up their marketing, a la the Goldfish/David Bowie "Change" commercial. SuSE is a solid product with a much more mature configuration interface than RedHat, at much lower support contract fees. It is used in quite a few large organizations which I am not at liberty to discuss (non-disclosure agreements and what-not.) They are in the best position for Active Directory/Linux integration products, and would do very well to very broadly advertise their companies new direction.

I have used SuSE for years, it did indeed take a hit in usability when Novell bought it. It has since been developed and become a very stable and refined platform.

Novell is one of the top contributors to the Linux kernel. The OSS community, as much as they dislike Novell's interactions with Microsoft, would see less development with it's break up and the distribution of its parts.

Re:It's been a while, but...

[poetmatt]

Umm? Do you even realize who this hedge fund is? I'm going to copy from groklaw here.
Sounds like no, my sarcastic friend. Elliott is run by Paul Singer. Link states:

Paul E. Singer, a former corporate lawyer, is "the founding partner of Elliott Associates, a $7 billion hedge fund with a conservative, risk-averse bias that has been in business since 1977, making it one of the oldest funds around. A reserved, private man who would answer questions only via e-mail, Mr. Singer is a self-described conservative libertarian who has given millions of dollars to Republican organizations that emphasize a strong military and support Israel."

Singer is a member of the Board of Trustees of the neo-conservative think tank the Manhattan Institute for Policy Research; a "member of the boards of the Jewish Institute for National Security Affairs and of Commentary Magazine, and is on the Board of Advisors of the James Madison Program in American Ideals and Institutions at Princeton University", and a member of the Board of Fellows of Harvard Medical School.

Also from the NYT

Paul E. Singer is the founding partner of one of the oldest hedge funds around. And while he has become a major donor to Republican and conservative causes in recent years, he has largely managed to stay out of the limelight, even avoiding having his picture appear in newspapers. [...]

Howard Dean, the chairman of the Democratic Party, questioned “Paul Singer’s involvement in this dirty trick aimed at stealing the White House.” A group of Democrats filed a complaint with the Federal Election Commission charging that Mr. Singer had been acting on behalf of Mr. Giuliani in his efforts to change the California law — which Mr. Singer and the campaign deny. And the Democratic National Committee drew attention to the part of Mr. Singer’s business that involves buying the debt of poor countries at a discount and then seeking repayment in full — prompting an article in The Times of London labeling his firm, Elliott Associates, a “vulture fund.”

.

I didn't have to read either of those to already know that. Notice from the NYT: Vulture fund.

Meanwhile, what's the kicker?

The shareholders are pissed already and think it's BS/hostile takeover. from that link:

An investigation on behalf of current long term shareholders in Novell, Inc. (Public, NASDAQ:NOVL) concerning shareholder claims over potential breaches of fiduciary duty and other violations of state law in connection with an alleged unfair takeover was announced.

So umm, whoops?