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Novell to Buy SuSE Linux for $210M
SAN JOSE, Calif. -
Novell Inc., a software pioneer that was badly
battered as it tried take on Microsoft Corp. in the 1990s, jumped back into
the fray Tuesday with a deal to acquire operating system vendor SuSE Linux
(news - web sites) AG for $210 million in cash.
Combined with recently acquired Ximian Inc.,
the SuSE purchase would make Novell one of the top suppliers of Linux, which
has been growing in popularity in recent years as an alternative to Microsoft's
Windows operating systems and other proprietary software.
For Germany-based SuSE, the deal means it can
more rapidly expand its sales channels beyond Europe, where it is the leading
Linux distributor. Analysts expect it to pose a major challenge to Red Hat
Inc., currently the top Linux vendor worldwide.
"Novell's global reach, marketing expertise and reputation for security, reliability and global enterprise (news - web sites)-level
support are exactly what we've been seeking to take SuSE Linux to the next
level," said Richard Seibt, SuSE's chief executive.
Shares of Provo, Utah-based Novell soared more
than 21 percent on the news, closing up $1.28, to $7.33, in Tuesday trading
on the Nasdaq Stock Market.
The deal is scheduled to close by the end of January.
Novell, however, has not had much success beyond
its NetWare network operating system. In the 1980s, it ran an estimated 70
percent of the world's servers. Since then, Microsoft has whittled Novell's
share down to about 17 percent.
Through its history, Novell repeatedly battled Microsoft and failed. In 1993, it bought Unix (news - web sites)
System Laboratories in an effort to offer an alternative to Windows. It was
sold four years later. Its acquisition of WordPerfect also failed as it tried
to offer a rival to Microsoft's Office productivity suite.
"The good news is that the management team
in place today is not the same management team that made those decisions
earlier," said Earl Perkins, an analyst for the Meta Group. "They appear
to be making some fairly good moves."
Novell's strategy has been to continue its
NetWare offerings but also branch into Linux. Until Tuesday, its biggest
move had been the acquisition of Ximian, a developer of Linux software. With
SuSE, Novell will become a force in the core, or kernel, of the operating
system.
Unlike proprietary operating systems like Windows,
Linux is developed by a community of thousands of largely unpaid programmers
who share code freely with the understanding that any useful developments
also be distributed freely.
"If you're Novell, you need to find growth
opportunities." said John Enck, a Gartner Inc. analyst. "Novell is clearly
looking for other market opportunities to expand into."
Still, there is some uncertainty over whether
software that is essentially available for free can generate significant
sales even when packaged with support and service contracts.
"There is some money to be made in this, but
not a lot, not right away," Perkins said. "They're trying to formulate a
strategy that's a reasonable alternative to the Microsoft monolith. If they
succeed, there's going to some time before they have penetration in Microsoft's
market."
After considerable consolidation during the
high-tech bust, two major Linux distributions have emerged: Red Hat and SuSE.
A number of systems vendors, such as International Business Machines Corp.,
Hewlett-Packard Co. and Sun Microsystems Inc. have been selling systems based
on Linux but have not created their own versions. IBM has been a major SuSE
customer.
On Tuesday, Novell said IBM plans to make a
$50 million investment in Novell convertible preferred stock and that the
companies are negotiating the continuation of SuSE-IBM deals.
"IBM's investment is an indicator IBM intends
to keep a close eye on what happens here," said Gordon Haff, a senior analyst
at the research firm Illuminata.
Another lingering question is the SCO Group's
claims that its Unix intellectual property has been wrongfully copied into
Linux. Ironically, SCO's parent company obtained those rights from Novell
in 1997.
Most analysts believe Novell's purchase is an
indication that the industry is ignoring SCO's claims despite its breach-of-contract
lawsuit against IBM. IBM has denied the allegations and filed its own counter
claims.
"(Novell's acquisition) is evidence that the
market is ignoring SCO," Perkins said. "This decision was not made with any
deep or abiding concern about SCO's threats."
___
On the Net:
Novell: http://www.novell.com
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