Software innovator Novell Inc., based in Provo, and Cambridge, Mass.-based Lotus Development Corp. have called off their planned $1.5 billion merger after negotiations fell apart over control of the new board of directors, a spokeswoman said.
In a statement, Lotus President Jim Manzi said he regretted the merger could not be completed but expects his company's business would be "unaffected" by the change in plans."Our direction remains unchanged, focusing on our cross-platform strategy and our leadership in networked and stand-alone applications," he said.
Lotus stunned the computer industry April 6 when it announced plans to buy its networking counterpart in Utah. Analysts viewed the merger of equals as a bid to take on the industry giant, Microsoft Corp.
But "late last (Friday) night it fell apart and it didn't look like it would get any better," Lotus spokeswoman Heidi Sinclair said.
Under the letter of intent signed April 5, Lotus was to issue 1.19 shares of common stock for each share of Novell common stock, or approximately 41.6 common shares, a deal worth an estimated $1.5 billion.
The companies decided to avoid secret negotiations, opting instead to ratify terms and review each other's records as openly as possible, Manzi said.
The agreement broke down in discussions over control of the new firm, which would have been called Lotus-Novell, Sinclair said.
"We had agreed that the board of directors would include four people from our side and three from Novell's side. Late last night, they said they wanted four on the board so it would be even," Sinclair said.
"When you get into that kind of a situation, you get into polarization and no decisions can be made easily. We had made a lot of what we thought were important steps toward ensuring that Novell had good visibility within this merger.
"We were ready to make (Novell Chairman) Ray Noorda the chairman and combine the names of the company, but Ray would still report to Jim, and we needed to be in control of the board," Sinclair said.
Novell had been expected to bolster Lotus's recent focus on service, support and consulting services in an effort to shed its reputation as a one-product company.
Lotus grew into a 2,700-employee company with $556 million in annual sales largely on the success of its 1-2-3 personal computer spreadsheet. Novell, founded in 1983, is a leader in personal computing software. Its sales soared from $55 million in 1985 to $422 million last year.
Novell executives could not be reached for comment by press time.