The stock market reaction to the offer was predictable: Novell’s stock surged 27 percent right after the news broke, and it should stay strong for a while until the market figures out if this is a Good Thing.
The Linux community hasn’t raised a big fuss, though I suspect they’re still absorbing the news. I know I am, for my part. In particular, I am wondering what will happen to Novell if they accept this unsolicited bid?
Some people in the know, like Canonical’s COO Matt Asay think this deal could work for SUSE. In his view, Elliot would do well to sell off Novell’s Linux division.
I wish I could agree with him, but I looked at Elliot Associates’ past history of taking “an activist approach to investing, frequently amassing significant but minority stakes in distressed or under performing companies and attempting to foment change,” and I don’t like what I see.
Elliot Associates is best known as a ‘vulture fund.’ They don’t make investments to turn companies around. They make investments to crush the cash out of them and then leave the picked over bones for someone else to pick up.
Andy Updegrove, a lawyer, calls it a “Game of Cat and Mouse”.
I haven’t seen any article yet, though, that describes in detail how the high stakes game of tender offers is played, and how the usual process maps (and doesn’t) to a high tech company like Novell. So I thought I’d provide an overview for those that haven’t had occasion to follow a tender offer in the past, and also my thoughts on what may happen over the next several months in this particular game of cat and mouse.
So here goes.
The tender offer game: First up, let’s talk about how the standard drama plays out. It starts with the acquiror trying to pick up as much stock as possible on the sly before it comes out of the closet. That’s because once word gets out that the company (referred to as the “target”) is “in play,” the stock will go up. So the acquiror wants to build as big as stake as possible at the cheapest price it can.
But the securities regulators have long realized that this presents two problems: first, the sellers will feel cheated if they later find out they sold at a steep discount to what others get a short while later, and second, the acquiror will vote all the shares it picks up in favor of the acquisition. So the Securities and Exchange Commission (SEC) requires any company that acquires more than 5% of the stock in a public company to make a public filing disclosing that ownership and its intentions.
That filing is made on form 14D, and it must be regularly updated as the acquiror’s ownership percentage changes, and as its intentions change. When an acquiror files a 14D, it could affirmatively state that it has no intentions of making a tender offer. Depending on the acquiror, that statement might be credible, or it might be viewed with suspicion. But if it affirmatively states that it intends to make a tender offer, or is keeping its options open, then the word spreads – fast.
Novell’s stock may be rising (the valuation of Novell’s assets is discussed at IDG), but that’s not the point. As Chips B. Malroy explains, “If Singer acquires Novell for 1.8 billion, the causal bid, and Novell has 991 million is cash, Singer is only paying 809 million actually. Singer has lowballed the bid, in hope another company will come in and bid more, so that drives up the price of the 8.5% that Elliot already has, profit, short term, mission accomplished. But if that doesn’t happen, and Novell will surely reject the bid, wait for some minor setback in the SCO case, or the next quarterly results from Novell, something bad, and then, true to form, Elliot will reoffer at a lower bid. That is Singer’s modus operandi. By doing this, he causes the stock to tank, so he can buy more cheaply.”
“Singer has lowballed the bid, in hope another company will come in and bid more, so that drives up the price of the 8.5% that Elliot already has, profit, short term, mission accomplished.” –Chips B. MalroyWe have already learned that lesson from Carl Icahn. Malroy comments further on “what Singer will do to Novell, should [he] buy it. He will get rid of almost all top management, and most of middle management. Stop all R&R mostly. Stop and or sell any parts of the company not profitable (and transfer the 991 million to Elliot first).”
Summary: Coverage of what seems like the inevitable sale of Novell (NOVL) to other hands
LAST YEAR we criticised Ron Hovsepian (Novell CEO) for the fact that he accepted about $6 million in bonuses while firing many SUSE developers whose combined annual wage would also be roughly $6 million. Novell is run by greedy managers mostly for their own benefit it would seem, not really for the interests of the company, its shareholders, its staff, and its vision (GNU/Linux).
A few days ago we found in YouTube this very new video from a nice chap who was laid off by Novell. He learned .NET towards the end of his days at Novell.
So Novell is laying off people. Tough time, eh? Well, not for the Hovsepian family. Ron is receiving an extra $5.7 million for 2009 [1, 2] as though he actually made something special happen. Novell's financial results disappointed investors last week. But anyway, here is where Ron stands:
Novell president and CEO Ron Hovsepian’s total compensation fell 17% in 2009, amid declining annual revenue and a wider net loss.
Hovsepian received compensation in fiscal 2009 valued at $5.7 million, compared to $6.9 million in 2008, according to documents filed late last week with the US Securities and Exchange Commission.
The poor guy. ‘Only’ $5.7 million. What it does not say is that his bonus from last year angered quite a lot of people. It was far too much for far too little in terms of achievements.
Did he perform well?
Well, not quite. In fact, his company is destined to accept a takeover [1, 2], based on most assessments that we found so far. We’ll go through them very quickly and as exhaustively as possible. We have looked at many articles and some general background. Here is what seems like a positive article:
Novell Soars on Takeover Offer
Add Novell (NASDAQ: NOVL) shareholders to the list of those who have figured out how to earn money from open source technologies.
But it has nothing to do with SUSE and the price is not high. Here are some other reports that came out first [1, 2, 3] (it’s a close call, so it’s hard to tell who broke the news) and some of the trailing ones that add:
Elliott is already one of Novell’s largest shareholders and owns 8.5% of the company’s stock.
The original headline from Reuters has the headline“Elliott Associates, L.P. To Acquire Novell, Inc.”
It didn’t quite turn out to be certain, so Reuters reported inaccurately. From the WSJ:
Hedge fund Elliott Associates LP, which holds an 8.5% stake in Novell Inc. (NOVL), offered to buy the rest of the software company for about $1.8 billion.
Hours later came a lot of coverage [1, 2] that characterised Elliott’s move as merely an offer (see the letter at the bottom of this post — a letter that Novell confirmedreceiving).
As The VAR Guy points out, it’s not clear what this whole thing means to SUSE (he also refers to the recent results).
Just last week, Novell announced mixed financial results, but the company did mention that SUSE Linux business has reached the break-even point. The VAR Guy wonders: Was that break-even statement about SUSE Linux an open letter from Novell to other potential suitors? Hmmm… Either way, investors are betting Novell will soon get acquired: Novell shares surged about 26 percent after the buyout offer started making news.
[...]
Either way, two things are clear: Novell received an unsolicited takeover offer. And now that the takeover offer is public news, all eyes are on the future of SUSE Linux.
Waltham software maker Novell Inc. received an unsolicited takeover bid of about $2 billion from a major shareholder, hedge fund Elliott Associates. Novell said its board will review the offer.
Elliott is ready to sign confidentiality agreements and begin its due diligence, and it says that the letter is not a legally binding obligation. As El Reg goes to press, Novell is working on a statement to respond to the offer from Elliott and would say no more on the matter.
Secrecy sometimes implies misconduct. Further details [1, 2, 3] add too little, so it remains difficult to know what’s going on deep inside the company and Matt Asay, a former Novell employee, only speculates. He mentions Elliott’s dodgy Congo affairs that we wrote about last night.
Would Elliott sell? Almost certainly. Elliott is an investment firm more known for its trades in Congo debt markets than technology securities and is likely already scouring the market for likely homes for Novell’s different divisions, with the Linux business the best of the bunch.
[...]
In sum, Novell’s legacy has weighed down its ability to push its Linux business into top gear, a problem that won’t afflict likely suitors for that business. These companies have largely relied on Red Hat to be a counterweight to Microsoft on the OS side. But with a healthy middleware and virtualization business, Red Hat starts to look like a credible threat to Oracle, VMware, and other erstwhile partners.
All of which positions Novell’s Linux business to play a critical role in the software industry. Let the bidding begin.
In Reuters Blogs, Elliott is described as “activist hedge fund” (yes, by Reuters), which is a familiar title because of raiders like Carl Icahn who fought Microsoft’s battles to take over Yahoo! (which they eventually did in a way, even cheaply).
Sean Michael Kerner believes that going private would be good for Novell.
In layman terms it basically means Novell is for sale and could be taken private by institutional stock holder/Hedge Fund Elliot Associates. In my personal opinion it’s likely a good deal for Novell and its shareholders.
What if Elliott decided to take over Novell in order to just sell it? That’s a possibility.
Anyway, Novell’s shareholders liked the offer [1, 2, 3, 4] and the market rallied.
Elliott’s bid could trigger more offers from companies such as Cisco Systems Inc., Hewlett-Packard Co. and Microsoft Corp., said Richard Williams, an analyst at Cross Research. Novell reported its sixth straight quarterly sales decline last week, and Chief Financial Officer Dana Russell predicted “muted” revenue in the current quarter.
Just as a reminder, Novell is a declining business. It is pointed out in IDG’s coverage of this latest bid:
Novell has struggled financially, recently reporting its sixth consecutive quarterly sales decline. Revenue fell 10% during its most recent fiscal year wrapped up in October and its net losses widened. CEO Ron Hovsepian’s total compensation fell 17% to $5.7 million.
That pretty much sums up what we’ve found so far. It’s an interesting time because the SCO lawsuit, the WordPerfect lawsuit, and many other things are at stake. █
March 2, 2010
The Board of Directors
Novell, Inc.
404 Wyman Street, Suite 500
Waltham, MA 02451
Attention: Richard Crandall, Chairman
Attention: Ron Hovsepian, Chief Executive Officer
Dear Members of the Board of Directors:
I write to you on behalf of Elliott Associates, L.P. and Elliott International, L.P., which collectively own, or have an interest economically equivalent to, 8.5% of the common stock of Novell and are currently one of the Company’s largest stockholders. Elliott is a multi-strategy investment firm with over $16 billion in assets under management focused on employing detailed research to address complex investment situations.
Based on our detailed review of the Company’s publicly available information and our substantial knowledge of the software industry, we are pleased to submit this proposal to acquire all of the shares of common stock of Novell for a cash price of $5.75 per share. This price represents a premium of 49% over the Company’s current enterprise value and 77% over the Company’s 90-day volume-weighted average enterprise value.
As the Company’s cash balance of nearly $1.0 billion represents almost 60% of its current market capitalization, we believe that a premium to enterprise value represents the most meaningful measure of the value that our proposal offers stockholders, valuing the Company’s cash at 100 cents on the dollar despite the fact that a significant portion of that cash is overseas and may not be realized in a tax efficient manner.
Importantly, this price represents a premium of 115% over the Company’s enterprise value on January 4, 2010, the last trading day before we commenced actively acquiring Novell’s common stock. This price also represents a 37% premium to Novell’s closing stock price on January 4, 2010 and a 20% premium to Novell’s closing stock price yesterday. By any measure, we believe our proposal represents a compelling opportunity that your stockholders will find extremely attractive.
Novell is a long-established company that we have followed closely for a considerable period of time. Over the past several years, the Company has attempted to diversify away from its legacy division with a series of acquisitions and changes in strategic focus that have largely been unsuccessful. As a result, we believe the Company’s stock has meaningfully underperformed all relevant indices and peers. With over 33 years of experience in investing in public and private companies and an extensive track record of successfully structuring and executing acquisitions in the technology space, we believe that Elliott is uniquely situated to deliver maximum value to the Company’s stockholders on an expedited basis.
Our proposal is subject to a confirmatory due diligence review of the Company and negotiation of definitive documentation. We are available to sign an appropriate confidentiality agreement and commence our due diligence review immediately. Elliott is prepared to devote considerable resources to completing this transaction and we are confident that, with your cooperation, we will be in a position to execute a definitive transaction agreement on an expedited basis. While we intend to work with financing sources, obtaining financing is neither a condition of our proposal nor a condition to completing the transaction.
We are prepared to meet immediately with you and your advisors in order to answer any questions about our proposal and to work out the details for moving toward a definitive transaction agreement. We also look forward to discussing with management its role with us going forward.
Of course, nothing in this letter is intended to create a legally binding obligation and no such obligation will exist unless and until a definitive transaction agreement is executed. As a result of our substantial share ownership in Novell, SEC rules oblige us to make the existence and contents of this letter public. Please feel free to contact me at (212) 506-2999 to discuss or clarify any aspect of this proposal.
On behalf of Elliott, we are very much looking forward to working closely with the talented employees of Novell to bring the Company forward to its next phase of growth.
Elliot offers to buy Novell Inc. for $2bn; Novell stock surge
[...]
“The deal price is on the low side compared to recent deals that were transacted in the enterprise software space,” said Cross Research analyst Richard Williams.
[...]
William said there could be more companies who would offer a similar bid for Novell as Elliot’s. HP, SAP, and Microsoft are expected to be the possible suitors.
Microsoft, already having a strong business partnership with Novell, sells Novell’s version of Linux to its customers.
This whole episode may explain why a lot of executives quit the company recently. At this stage, it seems unlikely that Novell will stay NOVL this year. █
“Now [Novell is] little better than a branch of Microsoft”
A New York hedge fund is in a court battle with the Republic of Congo over who is robbing the oil-rich but dirtpoor African nation.
[...]
Although he didn’t mention any names, the President was clearly referring to Kensington International, a Cayman Islands company that owns more than $100 million of Congo’s sovereign debt and is controlled by Elliott Associates, a $6.5 billion New York City hedge fund.
Cayman Islands? Congo? Control by proxy? What is this firm? According to this press release, it describes itself as follows:
Elliott Associates, L.P. and its sister fund, Elliott International, L.P. have more than $5.2 billion of capital under management as of July 1, 2005. Founded in 1977, Elliott Associates is one of the oldest hedge funds under continuous management. The Elliott funds’ investors include large institutions, high-net-worth individuals and families, and employees of the firm.
So in principle, a company like Microsoft too can lend some money for Elliott Associates to use that money. That’s just a theory. We’ll soon post today’s IRC logs which contain more information. █
Will the Fed write off another measly trillion or so?
Summary: Microsoft leaves customers and their financial data stranded while Windows botnets cause an untold but extremely large damage (estimated at over a trillion dollars)
Microsoft’s many dead products include Money [1, 2]. Those who relied on Microsoft for their accounting are pretty much screwed or seriously inconvenienced at the moment. André Rebentisch writes about “Microsoft Money data bailout“
Microsoft Money, a Quicken competitor, is discontinued. But what happens to users and their “locked in” data?
* A request to disclose the .mny format documentation of Microsoft Money was denied.
* Some Microsoft developers suggested to open source the obsolete product which would imply disclosure of the interface information.
Let this teach us about the failures of proprietary software and the dangers associated with using it. A more considerable danger is the fact that plenty of financial data is stored on a platform with ~50% change of already being hijacked. The following report from several days ago (IDG) reminds us that many servers run GNU/Linux and UNIX, so desktops — not servers — are quite typically being targeted.
Attackers going after end users rather than servers
[...]
Rather than targeting Web and email servers, attackers these days are prone to going after enterprises from the inside out, compromising end user systems and then using them to access confidential data, according to a Web traffic analysis report by security-as-a-service provider Zscaler.
Three quarters of Asia Pacific enterprises — and two thirds of businesses in Singapore – have experienced cyberattacks in the past 12 months, according to new global research.
The 2010 Symantec State of Enterprise Security Study, released last week, found that 38 per cent of Asia Pacific enterprises, and 67 per cent in Singapore, rank cyberrisk as their top concern, more than natural disasters, terrorism, and traditional crime combined.
This contributes perhaps to trillions of dollars in damages. A lot of people are still shocked by these numbers because they have not been paying enough attention. █
According to this new report, county executive Dow Constantine was “Inundated with Hundreds of Identical Emails from Microsoft”
2. County executive Dow Constantine was inundated with hundreds of identical emails from Microsoft employees yesterday, imploring him to “use your leadership to make sure the [520 bridge] project remains on track.”
The text of the emails was copied and pasted from Microsoft’s new “Let’s Move” web site, part of a pricey new campaign by the Redmond company to defeat a proposal by Mayor Mike McGinn and House Speaker Frank Chopp (D-43) to revisit the idea of putting light rail or bus-rapid transit on the bridge.
It’s about that bridge which we wrote about last week and over the weekend [1, 2]. In order to promote its interests, Microsoft is publishing more of its own ‘articles’ in R&D Magazine (there has been a lot of that stuff in recent months, which makes one wonder about the integrity of this magazine) and nothing is said about the tax evasion [1, 2] involving a former Microsoft manager who now works in the government. What a huge distraction.
In an astonishingly cheeky letter to Ballmer, McGinn granted no merit to Microsoft’s position of wanting to adopt the current consensus plan for expanding 520; told Ballmer to “share my response with your employees”; and invited Ballmer to “discuss this important project in a town hall with you and fellow Microsoft employees on your campus in Redmond.”
In a functional system, the government listens to people and controls the corporations. But in this current system, corporations control the government, which does not listen to the people. █
Summary: A look at all the coverage we could find about Novell’s financial report from Thursday
LOOKING back at the past 2 weeks, we find that Novell’s results did not surprise for the better. Here is a roundup of some posts on the subject, latter parts being more relevant than the former.
The Week Before
A week and a half before the results came out there was nothing particularly interesting in the news. Novell was just mentioned in:
SmarTrend, our proprietary pattern recognition system, called an Uptrend for Novell (NASDAQ:NOVL) on January 06, 2010 at $4.53. Since then, Novell has returned 9.9% as of today’s recent price of $4.98.
It didn’t last long.
Results’ Week
Things became a little more interesting days before the results came out, with coverage including:
Assured Guaranty (AGO), Crocs (CROX), Fluor (FLR), Gap Inc. (GPS), LaSalle Hotel (LHO), Novell (NOVL) and Universal Health (UHS) are among the major companies that will report their quarterly results after the markets close for trading.
After the markets closed for trading in the previous session, software solutions provider Novell Inc. (NOVL) reported a higher profit in its first quarter, helped lower operating expenses, notwithstanding a decline in revenues. Earnings for the quarter were in line with estimates, but revenues fell short of expectations. Looking ahead to the second quarter, Novell expects sequential revenues to be flat.
Novell Inc. (NOVL) saw shares fall slightly after the company said fiscal first-quarter earnings per share were in-line with the Street’s view, but reported worse than expected quarterly revenue.
Novell shares slump after quarterly revenue outlook
[...]
Investors pushed Novell /quotes/comstock/15*!novl/quotes/nls/novl (NOVL 4.69, -0.01, -0.21%) shares down 1.3% to $4.75 after the business software provider said it expects second-quarter net revenue “to be similar” to first fiscal quarter that ended in January. Analysts had expected second-quarter revenue of $212 million. Novell reported first-quarter revenue of $202.4 million compared with $214.9 million in the year-ago period.
Novell, Inc. announced that for second quarter of 2010, it expects net revenue to be similar to first quarter of 2010 revenue levels. The Company reported net revenue of $202 million in first quarter of 2010. According to Reuters Estimates, analysts were expecting the Company to report revenues of $212.6 million for second quarter of 2010.
Earnings for the quarter were in line with estimates, but revenues fell short of expectations. Looking ahead to the second quarter, Novell expects sequential revenues to be flat.
They compare a year of financial collapse to one that is less so. They also say nothing about the small margin, whose increase on an absolute scale is rather small. Here is what a Microsoft boosterhad to say and also another perspective:
Elsewhere, Novell Inc. (NOVL) reported first-quarter net income of $20.2 million, or 6 cents per share, on revenue of $202.4 million. Analysts had expected Novell to post a profit of 7 cents per share on $207.6 million in revenue. Options traders had high hopes for NOVL’s quarterly report, with the stock’s SOIR of 0.17 indicating that calls outnumbered puts by a factor of more than five to one. What’s more, this ratio arrives at an annual low, meaning that these speculative investors have not been more bullishly aligned during the past year.
Here is what Novell boosters had to say, looking at just one portion of the business in isolation:
Novell’s latest quarterly financial results, revealed today, were a mixed bag for the SUSE Linux provider. Novell made progress in some areas. But didn’t really thrive in others. Where does the company go from here. The answers will likely surface at the Novell BrainShare 2010 conference (March 21-25, Utah), where Novell will strive to energize channel partners and customers? In the meantime, here’s a look at Novell’s current business condition … through the eyes of The VAR Guy.
Initially, The VAR Guy wasn’t all that impressed with Novell’s latest financial results, announced Feb. 25. But our resident blogger overlooked one important fact: Novell’s SUSE Linux business is now break-even. That’s an important milestone — but what does it say about the broader open source industry’s march to profitability? Here are some clues.
There is a picture of a scale there, with people on one side and cash on the other. GNU/Linux in general is growing rapidly, but Novell broke even only after SUSE layoffs which cut expenses down. “Microsoft Deal Slumps,” claims Sean Michael Kerner and Timothy Prickett Morgan more or less agrees with him about Novell’s Ballnux business breaking even.
For the quarter, Novell continued its trend of ever-shrinking overall sales as its legacy NetWare operating system and GroupWise collaboration software business declines faster than SUSE Linux support revenues can fill in the gap. Total revenues for the quarter came to $202.4m, down 5.8 per cent, with software license sales plummeting 25 per cent to $21.2m (largely because of NetWare declines).
Days Afterwards
As the following chart hopefully shows, Novell’s stock respondednegatively to Thursday’s report. It fell on Friday. █
But anyway, it might not be just Monsanto that’s using the Gates Foundation to support their former employer; it’s important to remember that Gates also has billions of dollars invested in — not donated to — the Pharmaceutical Cartel [1, 2, 3, 4, 5]. It’s about patents that grant them a monopoly on life-saving drugs.
The head of global health for the Bill & Melinda Gates Foundation is under scrutiny by members of Congress for his previous job at one of the world’s largest pharmaceutical companies.
The Senate Finance Committee is investigating whether the drug company GlaxoSmithKline knew of possible health risks associated with the diabetes medicine Avandia. The committee’s senior members, Max Baucus, a Democrat from Montana, and Charles Grassley, a Republican from Iowa, released a report over the weekend that says that the company intimidated outside researchers from studying the drug.
[...]
Only a small portion of the 334-page report focuses on Dr. Yamada. But it says he made phone calls to officials at the University of North Carolina and the University of Pennsylvania to shut down studies of possible negative side effects of Avandia.
At the University of Pennsylvania, two researchers said that phone calls by Dr. Yamada and other drug company executives “were highly unprofessional and had a chilling effect on their professional activities.”
We have seen other such threats in recent months, specifically those which are intended to silence witnesses. Groklaw covered this at the time. And let’s not forget how the healthcare reform got derailed by a huge number of lobbyists (thousands of them) corrupting the government. This post and this site are not about the Pharmaceutical Cartel, but the relevance to Gates’ greedy operations need not be overlooked. According to watchers of Gates, “The Gates Foundation contracts with India’s most corrupt state”:
It will be interesting to see how the Gates Foundation deals with the corruption endemic to Bihar. And what will they do for security? Form their own private army?
A memorandum of understanding will soon be signed between the Bihar government and the Bill and Melinda Gates Foundation for executing a slew of health projects in selected districts of the state.
Memorandum of understanding. Isn’t that wonderful? There are other new criticisms less worthy of a mention, but the take-home message is that Gates hires offensive executives from the same abusive companies that he invests in. The way it’s presented in the media typically echoes the spin which comes from Gates’ marketing team, but not everyone is buying it; not those who are close to the scene anyway. █
“Gates has created a huge blood-buying operation that only cares about money, not about people.”
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