Novell rebuffs $1bn takeover bid

Software vendor authorises review of alternative options after rejecting Elliot Associates' $5.75-a-share offer

Novell claims Elliot Associates' bid undervalues the company and its growth prospects

Novell has rejected an approach from one of its largest shareholders, claiming the $1bn (£665m) offer undervalues the company.

The software vendor revealed its board of directors has also authorised a review of other alternatives to return stockholder value. This includes the possibility of selling the company.

Hedge fund Elliot Associates laid down a $5.75-a-share share offer for Novell on 2 March, valuing the NASDAQ-listed firm at just over $1bn. It claimed the bid represented a 49 per cent premium over the firm’s "enterprise value".

Following a review of the proposal with its financial and legal advisers, Novell said on Saturday that Elliot’s bid was “inadequate”.

The alternatives Novell will now explore include not only a sale of the company, but also a return of capital to stockholders through a stock repurchase or cash dividend, strategic partnerships and alliances, joint ventures and a recapitalisation.

Despite the renewed hunger among tech firms to go public, Novell would not have been the first large vendor in recent years to move off the stock market and into private hands had Elliot got its way. Comms giant Avaya was bought by private equity outfits Silver Lake and TPG Capital in 2007, while UK software and services outfit Civica was taken private by 3i in 2008 for £237m.

Novell saw turnover drop from $215m to $202m year on year in its most recent quarter. Elliot claimed in a letter sent to Novell’s board that the company’s recent attempt at diversification through a series of acquisitions had “largely been unsuccessful”.

Elliot also claimed that Novell’s stock has “meaningfully underperformed all relevant indices and peers”.

However, Novell argued that Elliot’s bid “undervalues the company's franchise and growth prospects”.

It added that there could be no assurance that its review of alternative options would result in any agreement on transaction.

“The company does not intend to disclose developments with respect to any of these alternatives unless and until the board has approved a specific course of action,” Novell said in a statement.