Novell No More

There are still 'Is' to be dotted and 'Ts' to be crossed, but for all intents and purposes, the deal is done for Novell. The company is credited with making the local area network popular. With a large helping hand from Xerox, the benefactors of Adobe, Apple and 3Com, among others - is being bought by Attachmate for approximately $2.2 billion, excluding intellectual property assets being sold to CPTN Holdings LLC, a consortium of technology companies organized by Microsoft, for $450 million in cash.

Attachmate, which is owned by an investment group led by Francisco Partners, Golden Gate Capital and Thoma Bravo, plans to split Novell into two business units -- Novell and SUSE. So far all that is known about Microsoft's share is an SEC 8-K filing  is that it is buying the rights to Novell 882 patents. Also according to the 8-K, Novell and its subsidiaries are sitting on cash and cash equivalents equal to approximately $1.03 billion.

Long the subject of takeover rumors, the action started heating up earlier this year with as many as 20 companies - most of them hedge funds - looking to acquire Novell.

Founded in 1979, the company rose to fame with a PC network operating system called NetWare, based on the Xerox Network Systems protocol, and by the early 1990s accounting for nearly 70 percent of the NOS market. Eventually eclipsed in this space by Microsoft, today Novell has four major units. Novell's 2003 acquisition of SUSE in 2003 strengthened its open source business. Its main open source software products include SUSE Linux Enterprise Server, SUSE Linux Enterprise Desktop, and SUSE Moblin. The company currently provides products and support for proprietary and open source software to over 50,000 enterprises globally.

This appears to be a very good deal for Attachmate, but it is also ironic, says analyst Laura DiDio, principal, Information Technology Intelligence Corp. (ITIC). "It's like finally we've got a perfect circle. What would have happened if Ray Noorda (former Novell CEO) back in the early 1990s had accepted Microsoft's offer ($12-13 billion) to acquire Novell? And here we are 20 years later with them [Microsoft] now getting Novell, or at least a piece of them."As for Attachmate, they're getting a business with a market cap of $2.09 billion, and over a billion dollars in cash and assets for $2.09 billion. DiDio was a little surprised that Attachmate got SUSE, and not Microsoft, unless the SUSE intellectual property is among the 882 patents. She added that perhaps it's better that Attachmate appears to have SUSE, because if Microsoft was known to be acquiring SUSE outright, "that would put them in anti-trust hell."

ITIC is just completing its annual server hardware and OS reliability survey and found the the quality of SUSE Linux product and reliability remains incredibly high, much better than the supposed leader, Red Hat. She expects Microsoft will continue to work closely with Attachmate on the SUSE business.

While there are some grounds for optimism, DiDio says Attachmate will also have to be very careful because Novell's profit margins, return on assets and return on equity are all suffering. "I think it's smart of Attachmate to say it will have two units, who knows how this is going to play out."

Charles King, principal analyst, Pund-IT Research, says Novell has a number assets that could prove valuable to broadening Attachmate's lines of business. "The SUSE Linux assets are the most obvious points, but the company's virtualization and security solutions could also offer platforms for new service offerings. And while Novel's traditional products and platforms are a shadow of their former selves, they could provide the means for developing new social networking-style solutions for the company's staunch clients."

Short term, King says the deal is good news for Novell's customers and partners, but longer term is problematic. " SUSE has always run a poor second to Red Hat, and with the corporate market for Linux becoming increasingly fragmented (most folks expect Oracle to recommend their own Linux to Sun customers) pickings could become notably thinner in this part of the business. In my opinion, it's critical that Attachmate put together some sort of roadmap for Novell ASAP. Otherwise, clients may start looking for greener pastures."Rob Enderle, Enderle Group, thinks Attachmate will use the interconnects into the Novell customer base to both protect their existing operations and to expand their customer base. "For the most part Novell as a company is done but they should be able to get support from some of the service organizations and licensees like HP and IBM for the foreseeable future. And none of these buyers wants to piss off the Novell customer base needlessly but it may take a while to work out who will do what."

Both Red Hat and Google have cause for concern, adds Enderle. "Red Hat should be concerned because they fought off Microsoft's first attempt to get them to license from them, and the next attempt will likely be vastly more aggressive now." As for Google, its been at war with Microsoft for some time and have proven unable to defend its licensees effectively. Linux is at the core of Google's products and Microsoft has been aggressively seeking royalties from those licensees. many of which seem to be paying more now to Microsoft than to Google. "In a time of heavy IP litigation, the more patents you control the better your odds and we seem to be in a massive IP litigation war with many of the emerging products leveraging some or all of the core UNIX patents and copyrights."