Novell has agreed to be acquired by Attachmate Corp., a 30-year old IT host connectivity and systems management integration firm, while also agreeing to sell $450 million in IT assets to a consortium led by Microsoft. The $2.2 billion deal brings Attachmate Novell's enterprise-focused SUSE Linux distribution, which it will spin into a separate business unit.

In a mildly surprising turn of events, financially troubled enterprise network and application software provider Novell said Nov. 22 that it has agreed to be acquired by Attachmate Corp. for $2.2 billion in cash.

The agreement is expected to be completed in the first quarter of 2011, and is contingent on "customary closing conditions including antitrust clearance, Novell stockholder approval and certain other regulatory approvals and closing conditions," said Attachmate.

The longtime rumor that Novell was planning to sell its Linux server business to VMware in a separate deal turned out not to be true. Attachmate, however, said it plans to break out Novell's enterprise Linux business, SUSE, into a separate business unit and join both Novell and SUSE with its other holdings, which include NetIQ.

SUSE Linux, which includes server and desktop versions of SUSE Linux Enterprise (SLE), is considered to be the number two enterprise Linux distribution behind Red Hat Enterprise Linux.

Novell's SUSE Linux Enterprise Desktop (SLED) in latest 11 SP1version
(Click to enlarge)

The purchase price works out to $6.10 per share, a 28 percent premium on the closing share price on March 2, 2010. That date was the last trading day prior to the public disclosure that hedge fund Elliott Associates had, in an unsolicited offer, proposed to acquire Novell for a $5.75 stock price.

Novell rejected Elliott's offer at that time but said it would seek other possible buyers for the company. However, since Elliott owns 29.9 million shares of Novell, it now will realize an approximate $40 million profit from the sale after hastening it along with its March offer.

Thirty-year-old Attachmate, which has about 65,000 customers, is an IT host connectivity and systems/security management integrator that has offices on six continents and is headquartered in Seattle. It is owned by an investment group led by Francisco Partners, Golden Gate Capital, and Thoma Bravo.

Microsoft to get Novell IP

Novell also said it will sell some of its intellectual property assets to CPTN Holdings LLC, a hithero unknown consortium of technology companies organized by Microsoft, for $450 million in cash. This payment will be contained in the amount to be paid by Attachmate, a longtime Microsoft partner.

Novell did not specify which assets Microsoft will get, leading some to wonder if any open source assets might be among the 822 patents heading to Redmond.

According to senior IT analyst Katherine Egbert of Jefferies & Co., the patents are "most likely related to WordPerfect, which Novell acquired in the late 1990s, and through which Novell had sued Microsoft for anti-competitive behavior."

The WordPerfect product line was sold twice, first to Novell in June 1994, which then sold it to Corel in January 1996. However, Novell kept the WordPerfect Office technology, incorporating it into its GroupWise messaging and collaboration product.

Continued Egbert in an advisory posted today, "Recall that Microsoft had settled outstanding litigation with Novell related to Unix in 2006, paying what amounted to [about] $350mm [million] to Novell over several years."

Since then, however, Novell has been criticized by many in the open source community for its cozy relationship with Microsoft, including a controversial 2007 patent agreement.

The $6.10 per share acquisition price "appears to be a reasonable takeout value," Egbert continued. "It values NOVL shares at 2.7x EV/revenue and 25x forward earnings."

Meanwhile, since Attachmate is not considered to be a major competitor with the clout of a VMware, for example, the sale of SUSE Linux by Novell to Attachmate is also a "mild positive" for Red Hat, wrote Egbert.

Despite the uncertainty about its future ownership, Novell nevertheless has continued to run its business as usual and produce new products. At VMworld last September, the company unveiled its first cloud computing platform, Novell Cloud Manager.

Novell's last major SUSE Linux Enterprise release was SLE 11 Service Pack 1 (SP1), announced in May in server and desktop versions. SLE 11 SP1 advanced the server version's virtualization capabilities with full support for KVM, and also boosted high availability clustering support. The desktop version updated audio, Bluetooth, and multi-monitor support.

Among the many questions surrounding the deal is what will happen with Novell-back projects such as OpenSUSE, which maintains a popular, open source desktop distro and upstream contributor to SLE. The community-driven OpenSUSE Project is also preparing a MeeGo version of the distro.

In addition, Novell runs the Mono project, which develops the dual-licensed cross-platform "Mono" implementation of Microsoft's .NET development framework.

Stated Jeff Hawn, chairman and CEO of Attachmate Corp., "This acquisition will add significant assets to our current portfolio holdings and the Novell and SUSE brands will allow us to deliver even more value to customers. We have great respect for Novell's business, its employees and its commitment to customers. Moreover, we look forward to maintaining and further strengthening Novell and SUSE solutions to meet market demands."

Chris Preimesberger is a writer for our sister publication eWEEK.

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