Elliot offers to buy Novell Inc. for $2bn; Novell stock surge

Elliott, which already owns 8.5 percent of Novell, began acquiring Novel’s stock since Jan. 4. The equity firm offered to pay $5.75 per share to Novell. Most of the investors were in favor of Elliott's offer.

“Over the past several years, the company 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,” said Elliott in a letter to the Novell board.

Novell could have more suitors?
Elliott portfolio manager Jesse Cohn said the offer “implies a $1 billion enterprise value, a 49 percent premium to the company's current enterprise value.”

Cohn said Elliott is “uniquely situated to deliver maximum value to the company's stockholders on an expedited basis.”

“The deal price is on the low side compared to recent deals that were transacted in the enterprise software space,” said Cross Research analyst Richard Williams.

“So we would expect to see either a higher bid down the road and or other bidders coming in. It seems in this instance they are buying an undervalued company and looking to break it up and capture the unrealized value from the assets. We believe there is $6 a share worth of undervalued assets,” he added.

William said there could be more companies who would offer a similar bid for Novell as Elliot’s. HP, SAP, and Microsoft are expected to be the possible suitors.

Microsoft, already having a strong business partnership with Novell, sells Novell's version of Linux to its customers.

However, Pacific Crest Securities analyst Nabil Elsheshai disagreed and said he does not expect another bid for Novell.

“It's fairly inexpensive relative to other software enterprise companies, but it's not surprising given Novell's growth profile,” Elsheshai said.

About Novell Inc.
Novell, a pioneer in developing hardware and software for networking, is the maker of SUSE Linux operating system.

Last week, the company reported a profit of $20 million for the first fiscal quarter of 2010.

However, revenue fell to $202 million as against $215 million last year.