Hedge Fund Offers to Take Novell Private for $1.8 Billion

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Hedge fund Elliott Associates has made an unsolicited $1.8 billion offer to take former software giant Novell private, in a move apparently motivated to maximize the company’s value to investors a series of strategy changes and acquisitions have failed to put Novell back into the top tier of technology companies. According to the Wall Street Journal (subscription required), Elliott believes Novell’s stock has significantly underperformed in recent years, its experience in restructuring companies will maximize value to shareholders. Elliott is already one of those shareholders: it owned about 8.5 percent of Novell.

Novell says it will review the proposal with its financial and legal advisors.

Two decades ago, Novell was a serious rival to Microsoft, producing not only the WordPerfect line of office productivity applications but the Novell Netware operating system which was widely used by corporations, government, and enterprise. However, Novell was eventually out-maneuvered by Microsoft’s Windows NT and Windows 2000 operating systems—and Microsoft used its operating system dominance to push Office over WordPerfect. Novell eventually embraced open source software, producing SUSE Linux for corporations and enterprise and leading one of the industry’s most significant—and longest-running—intellectual property cases against SCO, which claimed to have copyrights that applied to both Unix and Linux. SCO filed for bankruptcy in 2007, but the case is still lingering.

Novell’s SUSE Linux plays an interesting role in the open source world: it’s the only Linux distribution more-or-less blessed by Microsoft, which has been threatening patent infringement action against Linux for years…but has never done anything about it. Novell and Microsoft have a broad partnership agreement (recently extended) that shields SUSE Linux users from any patent infringement claims Microsoft may one day bring against the broader Linux platform. The results is that SUSE Linux, while still a distant runner-up for corporate Linux installations compared to Red Hat Linux—is the only Linux distribution guaranteed safe from theoretical Microsoft wrath…and that makes it a less risky choice for organizations and enterprises who don’t want to be on a hypothetical hook. Microsoft’s relationship with SUSE Linux also provides a way for Microsoft to participate in the open source community…and that relationship may now be one of Novell’s most valuable assets.