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Enterprise software marker and leading technology company Novell, Inc. announced it has received a buyout offer from Elliott Associates, L.P., the largest institutional stockholder of no. 2 maker of the open-source Linux operating system. Elliot Associates – an investment firm with over $16 billion in asset – holds approximately 8.5% of Novell common stock.
The dust of the Sun-Oracle deal, authorized by the European Commission just a few weeks ago, is yet to settle, and the IT industry records another major change.
The offer presented by Elliott Associates plans to acquire Novell for $5.75 per share in cash, which implies an enterprise value net of cash of $1.0 billion. Analysts evaluate the offer at a 49% premium over the company’s current enterprise value, 77% over the company’s 90-day volume-weighted average enterprise value and a 115% premium over the company’s enterprise value on January 4, 2010, when Elliot planned to purchase Novell. I also represents a 37% premium to Novell’s closing stock price on January 4, 2010 and a 20% premium over the company’s closing price on March 2.
Novell said that its Board of Directors will review the buyout offer in consultation with its financial and legal advisors J.P. Morgan and Skadden Arps.
The announcement caused Novell shares rise 28% to a $6.08 closure on tha day the offer went public. In the after-hours trading, the shares soared 25.89% (or $1.23) to $5.98. The surge in share price indicates positive investor sentiments regarding the takeover.
According to analysts, the deal may be subject to a competitive bidding process as it appears that larger companies such as Hewlett-Packard Company, IBM and SAP may bid for Novell. Microsoft has also been cited as a potential buyer by analysts.
Last week, Novell reported first-quarter earnings of 7 cents that beat the Zacks Consensus Estimates by a penny. However, the company has struggled to boost revenue hurt by intense competition from Microsoft, Oracle and Red Hat. As a result, first-quarter revenue of $202 million decreased 6% from the year-ago period. This was due to softness in 2009 invoicing and weakness in the company’s legacy products. Moreover, the decline was the result of a sharp drop in software license revenue, which fell 28% year over year. Services revenue declined 20.1% year over year, while maintenance and subscription revenue remained flat compared to the year-ago quarter.
Novell’s balance sheet remains sound with no debt. The company exited the quarter with $991 million in cash and equivalents, representing almost 60% of current market capitalization. Thus we believe that Novell will be beneficial to Elliott, since it remains undervalued.