March 03, 2010, 8:53 PM — Novell isn't the IT giant it once was, but the company may be well worth the $2 billion offered in a takeover bid by a New York hedge fund, analysts say.
Novell's value is "at least that, and more," says Gartner analyst Earl Perkins.
In a letter sent Tuesday to Novell's board of directors, the hedge fund Elliott Associates said its offer of $5.75 per share represented a premium of 49% over Novel's enterprise value, a measure that includes a firm's market capitalization, preferred stock and debt.
But Novell's stock jumped to $5.97 per share after the offer by Elliott Associates, which already owns 8.5% of Novell, Dow Jones Newswires reported.
Novell's operating income in the quarter ended Jan. 31, 2010, was a modest $21 million, but the company has $1.82 billion in total assets. After subtracting liabilities of $866 million, stockholder equity in Novell exceeds $953 million.
It's not likely Elliott Associates wants a long-term involvement in the IT industry, so the company must believe it will eventually see a return of more than $2 billion, possibly by selling off Novell's most valuable assets piece by piece, analysts say.
"I don't have any inside information, but given the fact that the offer is being made by a hedge fund, my assumption is they've taken a look at Novell's assets and books and they believe there are enough assets within the company to produce more than a $2 billion return if they decided to sell those off," says Pund-IT analyst Charles King.
Novell dominated the network operating system market in the 1990s with NetWare, but usage dwindled and that product has since been replaced by Novell's Open Enterprise Server. Coincidentally, Novell is scheduled to end general support for NetWare this Sunday, but will continue to offer an extended support plan until March 2012.
Novell's SUSE Linux is the second most widely used Linux distribution in the world, but its market share is still less than half that of Red Hat's, says IDC analyst Al Gillen.