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: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?