Why Novell is worth $2.2 billion to Attachmate

Despite the decline of Netware, Novell has SUSE Linux, one of the most popular commercial distributions of the open source operating system.

Novell has long since lost its position as a dominant vendor in the operating system market, but the vendor's long, slow decline didn't change the fact that Novell still has some valuable technologies.

The value still inherent in Novell was, to some extent, reaffirmed Monday by a definitive merger agreement in which Attachmate  is expected to purchase Novell for $2.2 billion.  

Novell through the years|Tech M&A deals of 2010

Why is Novell still worth that much? Despite the decline of Netware, Novell has SUSE Linux, one of the most popular commercial distributions of the open source operating system.

Novell's SUSE Linux business reportedly attracted VMware, which seemed to be interested in purchasing this portion of Novell. But in the end all of Novell, with the exception of $450 million worth of intellectual property assets purchased by a Microsoft-organized consortium, went to Attachmate. A deal has seemed likely since at least March of this year, when Novell rejected a $2 billion bid from Elliott Associates.

"Probably the biggest plum here is the SUSE Linux assets," says Pund-IT analyst Charles King. "SUSE has run a fairly distant second to Red Hat, simply because I don't think Novell had the wherewithal to expand services around Linux. They were a bit over their heads there. With Attachmate being focused on enterprise modernization, cloud computing and so on, I can see where Linux could be a particularly valuable asset there."

With Oracle making a new Linux push, King says the commercial Linux market could see increasing fragmentation, although he adds, "I don't expect Linux as an entity to change greatly."

Novell pulled in $199 million in revenue in the quarter ending July 31, with $37.6 million coming from open platforms, mainly Linux maintenance and subscriptions. In the quarter, Novell also reported $69.3 million in revenue for collaboration licenses, maintenance and subscriptions; $32.1 million in identity and security management; $38.5 million in systems and resource management; and $21.6 million in services.

Quarterly operating income was $21 million, identical to Novell's reported income in Q3 2009. However, quarterly revenue declined from $216 million to $199 million year-over-year.

Novell reports $1.846 billion in total assets and $850,000 in liabilities, leaving nearly $1 billion in stockholder equity.

Novell's acquisition marks "the end of an era," Gartner analyst Earl Perkins writes in his blog. Although Novell failed in market execution, "what remained consistent throughout most of Novell's existence was by and large the technical quality of most of its products." Perkins continues.

"Novell represents one of the original key players in the network operating system and identity management period from the early 1990s until today," Perkins also writes. "In fact, one could make an interesting case that the company made Microsoft what it is today through the early market battle between Novell NetWare and Microsoft Windows Server. We all know how that battle ended, but in the long run Windows Server was a better product because of it.

"Novell had significant and continued influence on many vendors, ranging from the identity and access management to the Linux market, from email to virtualization, and of course security. In most of those cases the company made a good to excellent showing of technology and was quick to improve upon it and in some cases to outpace its competitors both in terms of vision and architecture."

Attachmate, founded in 1981, was known early on for its terminal emulation software and more recently has expanded into management software, with buyouts of companies such as NetIQ and OnDemand Software. Attachmate is owned by an investment group led by Francisco Partners, Golden Gate Capital and Thoma Bravo.

While SUSE Linux is a totally new business for Attachmate, there may be some synergy between NetIQ, a systems management company owned by Attachmate, and Novell's technology from the Managed Objects acquisition, says Forrester analyst J.P. Garbani.

Attachmate has run NetIQ largely as a separate company, as there was little overlap between Attachmate's traditional product lines and NetIQ, Garbani notes.

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