Turbolinux, Linuxcare call off acquisition deal

By Todd R. Weiss, Computerworld |  Operating Systems

Software vendor Turbolinux Inc. and technical services firm Linuxcare Inc. have
called off a planned merger, less than three months after the deal was signed
by the two companies.

Arthur Tyde III, the CEO at San Francisco-based Linuxcare, yesterday confirmed
that the proposed acquisition of his company by Turbolinux is being dropped
because of the softening economy and "various financial aspects . . . that
couldn't be agreed upon" in the wake of the merger announcement.

The two companies disclosed the acquisition agreement in February, saying that
the combination would allow them to offer a bundle of Linux software and services
to users. The deal was seen by analysts as a sign of things to come in the Linux
business, which is currently populated by numerous small vendors.

But the economy and IT spending took a turn for the worse after the agreement
was signed, and Tyde said Turbolinux and Linuxcare decided "the market
conditions that brought us together in the first place had changed." The
deal was effectively cancelled last Thursday after officials on both sides agreed
that parting ways amicably was the best idea, he added.

"There are deals [with users] that we're still going to work on together,"
Tyde said of the two companies. "It's not a hostile situation." Tyde
was scheduled to become chief technology officer at the combined company, which
would have retained the Turbolinux name and been headed by current Turbolinux
CEO T. Paul Thomas.

Thomas echoed the view that changed economic conditions helped to quash the
planned merger. "It just didn't make any sense financially to put the companies
together," he said. "There's nothing sexy about it. There's no conspiracy.
We mutually agreed to go ahead and each run our own companies and continue to
work together."

Linuxcare and Brisbane, Calif.-based Turbolinux did sign a definitive agreement
to proceed in February, and the two companies had begun working together on
some activities, such as having their sales forces make joint customer visits.
But final merger documents hadn't yet been filed with the government, Tyde said.

"It's kind of like an annulment agreement to a marriage," he said,
referring to the demise of the merger. "You can't really say it's a divorce,
because we weren't really married." The terms of the deal hadn't been disclosed,
but Tyde said there will be no penalties or payments to each other as a result
of its cancellation.

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