By Brenon Daly
After holding out for more than eight months, Novell (NOVL) finally accepted on Monday a $2.2 billion buyout offer from private equity-backed Attachmate. From the outside, it appears like a case where the buyer – or maybe more accurately, the hedge fund that put the company in play – simply wore down Novell. Under terms, Attachmate will hand over $6.10 in cash per share for Novell.
If we step back and look at the offer, we can’t help but notice the company is now embracing a bid that only values it slightly more than the original offer that put it in play. For the record, Novell’s board said three weeks after receiving the unsolicited bid from gadfly investor Elliott Associates that the offer of $5.75 for each share "undervalues" the company and its prospects.
Apparently, Elliott’s opening bid wasn’t all that low ball because the company is selling for just 6% more than the offer that ‘undervalued’ it. We also would mention that Novell traded above the $6.10 bid several times during the summer, albeit on pure speculation. (JP Morgan Securities advised Novell, while Credit Suisse Securities and RBC Capital Markets worked for Attachmate.) The deal is expected to close in the first quarter of 2011, pending shareholder approval.
To be fair, the fact that Novell’s board got shareholders even a slight bump above the original offer should be viewed as a sell-side accomplishment. After all, Novell is a hoary, mixed-bag of businesses, with each unit attracting specific suitors. All of that made for an undoubtedly complicated process, with multiple permutations on bidders and bidding teams, as we understand it. (Companies we heard that may have taken a serious look at some point at Novell – or at least some of its businesses – include VMware (VMW) and Oracle (ORCL), among others.) Indeed, as part of the transaction, Microsoft (MSFT) is acquiring a sprawling portfolio of 882 patents from Novell for $450 million.
And beyond all of the complications around matchmaking is the fundamental fact that Novell just isn’t that attractive, regardless of whatever business we look at inside the company. Each component of its revenue (license, maintenance/subscription, services) has dropped so far this year, which is part of the reason why Novell has come up short of Wall Street expectations every quarter this year. Overall, sales have dropped 6% in 2010, and current projections call for Novell’s revenue to decline next year. As we look at it, the board probably did a fair job to get Novell valued at $1.2 billion (net of cash), which basically works out to 1.5 times sales. Novell shareholders now will have their say on the outcome of the more than eight-month process.