Update: Hedge fund offers $2B for Novell

Unsolicited offer comes from shareholder Elliot Associates; stock jumps after hours

A hedge fund that is already one of Novell Inc.'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 a share more than Novell's closing price Tuesday of $4.75 per share. 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 (see PDF) -- Elliott says the deal values Novell as an enterprise alone at about $1 billion.

Despite Novell's strong bank account, the company's revenues continue to shrink. In its most recent quarter, which ended Jan. 31, Novell's net revenue was $202 million, down 6% compared to a year ago. Income from operations was also down slightly year over year.

Elliott Associates and a related firm, Elliott International, are collectively Novell's third-largest shareholder, holding 8.5% of the company's stock, the hedge fund said in its statement.

Elliott, with $16 billion in assets, began acquiring Novell stock on Jan. 5 after following the company "for a considerable period of time," it said.

"Over the past several years, [Novell] has attempted to diversify away from its legacy division with a series of acquisitions and changes in strategic focus that have largely been unsuccessful. As a result, we believe the Company's stock has meaningfully underperformed all relevant indices and peers," the firm said in a statement. "With over 33 years of experience in investing in public and private companies and an extensive track record of successfully structuring and executing acquisitions in the technology space, we believe that Elliott is uniquely situated to deliver maximum value to the Company's stockholders on an expedited basis."

Neither Elliott nor Novell immediately responded to requests for comment on the offer.

Famed for its once-ubiquitous NetWare server operating system, Novell's fortunes have long been in freefall, despite winning technical plaudits for software such as Suse Enterprise Linux and the Novell Identity Manager security suite.

A strong proponent of open-source software, Novell signed a marketing/interoperability deal with longtime rival Microsoft Corp. The two companies are is still embroiled in a separate lawsuit.

The agreement with Microsoft has propped up Novell's revenues, but failed to jumpstart them.

Late last year, CEO Ron Hovsepian announced that Novell was planning deliver identity management software for cloud and virtualized applications.

Eric Lai covers Windows and Linux, desktop applications, databases and business intelligence for Computerworld. Follow Eric on Twitter at @ericylai or subscribe to Eric's RSS feed . His e-mail address is elai@computerworld.com.

Copyright © 2010 IDG Communications, Inc.

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