Novell Inc. agreed to be bought by Attachmate Corp. for $2.2 billion, ending an eighth-month strategic review aimed at reviving the Linux software maker that has struggled to sustain growth.
Novell investors will get $6.10 a share, Attachmate, a software company owned by private-equity firms including Golden Gate Capital Corp., said today in a statement. That’s 9.1 percent more than Novell’s closing price on Nov. 19. Novell will also sell some intellectual-property assets to a group of technology companies led by Microsoft Corp. for $450 million.
The company, which has reported sales declines for three of the past four years, had trouble competing against larger rivals such as Microsoft, said Rich Williams, an analyst at Cross Research. Novell started looking at strategic alternatives including a sale after rejecting a $2 billion takeover offer in March from shareholder Elliott Associates LP as inadequate.
“Management had struggled over the last few years to grow the new businesses and that created an opportunity given all of the cash from the balance sheet for financial bidders,” said Livingston, New Jersey-based Williams, who rates Novell “hold” and doesn’t own the stock. “The financially oriented buyers are going to hold the company, reshape it to a degree and then in a few years, in a more attractive environment, bring the company public.”
Novell’s new products were too “underdeveloped” to attract other technology companies as bidders, making it a suitable target for financial buyers, Williams said. Seattle-based Attachmate, whose owners also include Francisco Partners and Thoma Bravo LLC, said Novell will complement a portfolio that includes other technology assets.
Novell, based in Waltham, Massachusetts, rose 37 cents, or 6.6 percent, to $5.96 on the Nasdaq Stock Market at 4 p.m. New York time. It has gained 44 percent this year.
The company, which also competes against Oracle Corp. and BMC Software Inc., has said last year’s recession hurt customer orders. The company had $1.04 billion in cash and short-term investments at the end of the third quarter.
Novell makes Linux operating-system software, and its business units also include identity and security management, systems and resource management, workload management and its GroupWise e-mail system.
The consortium led by Microsoft is acquiring 882 patents, according to a regulatory filing. Microsoft declined to comment on the asset purchase, said Tricia Payer, a spokeswoman for the company. Novell Chief Executive Officer Ron Hovsepian also declined to elaborate on which patents were sold.
As part of the deal, fund manager Elliott will become a shareholder in Attachmate. New York-based Elliott was one of several parties in a 2006 buyout of Metrologic Instruments Inc., a maker of bar-code scanners. Elliott helped fund the 2009 acquisition of MSC.Software Corp. by private-equity firm Symphony Technology Group LLC.
The purchase price for Novell is 28 percent higher than the company’s stock price before Elliott’s March bid. The average premium acquirers offered for software companies in the past 12 months was 21 percent, with businesses that make software for enterprises the most popular targets, according to a Bloomberg analysis of more than 1,100 deals.
“Novell has a portfolio of valuable assets -- a legacy business with strong cash flows, attractive technology, extremely valuable intellectual property and a highly strategic Linux business,” said Jesse A. Cohn, portfolio manager at Elliott. “We believed there was a greater value in the company than the share price reflected.”
Novell, Suse Brands
Attachmate and Novell said they expect to complete the deal in the first quarter. Attachmate will sell products under the Novell and Suse Linux brands and hasn’t decided which products will be continued and what will happen to all of Novell’s employees, said Jeff Hawn, chairman and CEO of Attachmate.
Novell will be required to pay $60 million to Attachmate if it accepts a superior bid. If the deal falls through for certain other reasons, Attachmate may have to pay Novell $120 million.
Credit Suisse and RBC Capital Markets are acting as the financial advisers for Attachmate, and Jones Day is the legal adviser. JPMorgan Chase & Co. and Skadden, Arps, Slate, Meagher & Flom LLP advised Novell.
Attachmate plans to use as much as $1.09 billion of debt for the purchase. Credit Suisse Group AG, Royal Bank of Canada, Goldman Sachs Group Inc. and the securities unit of Citadel LLC agreed to provide the financing.
Private-equity firms pool money from investors to take over companies, financing the purchases mostly with debt, with the intention of selling them later for a profit.
Francisco Partners was part of a group of investors that sold chipmaker Numonyx Holdings BV to Micron Technology Inc., the biggest U.S. producer of computer memory, for $1.34 billion this year. Francisco Partners, based in San Francisco, invests in technology companies and manages about $5 billion, according to its website.
Golden Gate Capital, also based in San Francisco, manages $9 billion, according to its website. Its deals include the acquisition of Geac Computer Corp. for $794.2 million in 2006.
Thoma Bravo, which has offices in San Francisco and Chicago, bought United Parcel Service Inc.’s UPS Logistics Technologies unit for an undisclosed price last week. It acquired SonicWall Inc., an Internet-security firm, for $484.9 million in July.