PROVO — Novell Inc. has been strengthening its ties to the Linux computer operating system since spring, but Tuesday's announcement that it would acquire Germany-based SuSE Linux for $210 million in cash is the biggest step so far.
Provo-based Novell hailed the move as a way to expand its ability to provide enterprise-class services and support on the Linux platform — one that is "open-source" instead of based on proprietary underpinnings.
Novell also said Tuesday that International Business Machines Corp. will invest $50 million in Novell convertible preferred stock, and that the companies are negotiating to extend IBM's current commercial agreements with SuSE Linux once the Novell acquisition is completed.
News of the moves pushed Novell stock as high as $8.80 on Nasdaq Tuesday. It closed at $7.33, up $1.28, or more than 21 percent, representing the highest closing figure for Novell in more than a year. The stock has been as low as $2.14 during the past year.
SuSE Linux provides Linux software and services and is generally considered the No. 2 Linux developer worldwide, trailing only Red Hat. Established in 1992, privately held SuSE Linux is based in Nuremberg and employs 399 people. Novell said the move will allow it to distribute the underlying Linux platform itself, in addition to products and services that support it.
"The deal makes sense from many angles. . . . Novell will now be the only $1 billion company offering a full Linux stack, from the server to the desktop, and a worldwide ecosystem to support it," Novell's chairman and chief executive officer, Jack Messman, said during a Tuesday news conference from Germany.
The transaction is subject to regulatory approval and the conclusion of shareholder agreements. Novell expects the transaction to close by the end of its first fiscal quarter in January.
Messman said the SuSE Linux brand will be maintained and that Novell will take a couple of months to determine the best way to fit SuSE Linux into Novell. He said the companies overlap only a little, mostly in administration.
SuSE Linux is expected to generate $35 million to $40 million in revenues this year. The transaction will be neutral to Novell earnings per share for fiscal 2004 and positive over the longer term, Messman said, adding that SuSE Linux' presence in Nuremberg will be maintained.
Novell said in the spring it would have its NetWare operating system run on both NetWare and Linux "kernels" in future offerings. It followed up in June by saying it would supply a bundle of core networking services for Linux. In August, Novell acquired Ximian, which is involved in Linux server and desktop products.
"Despite all these actions by Novell, there was still a missing piece: the foundation itself, the platform," Messman said Tuesday. "Today, we have plugged that hole. With SuSE, we get one of the top two commercial Linux distributions on the planet. . . . SuSE has a truly global reach."
Novell's move toward open-source Linux has been in the works for a while, and Richard Seibt, chief executive officer of SuSE Linux, sounded happy to get a partner in the form of Novell. "Together with Novell, we can drive the adoption of Linux much faster than we would have done on our own," Seibt said.
"We've taken a very methodical approach to this," said Chris Stone, Novell vice chairman. "We did not want to come into the Linux community as a big, bad enterprise company. We wanted to learn, we wanted to make sure we participated with the community first before we made any major moves, and I think over the past nine months we've proven ourselves that we are willing to do it, we can do it and we want to do it. We will be the No. 1 company in this business over the coming years."
Messman added that the SuSE Linux/Novell combination "will create a company that the equipment manufacturers, hardware vendors and software firms will want to partner with to help promote Linux."
"Linux is the future of computing, and Novell SuSE will be a leader," he said. "Customers want choice, flexibility, low prices, reliability, security and world-class support. This merger helps customers by reducing barriers to the adoption of Linux in the enterprise. The combined company can now deliver low-cost, high-performance Linux applications while still giving the people running the network in every company the peace of mind they get from depending upon an experienced operating systems company like Novell."
"It was always SuSE's goal and vision that our technology become available everywhere in the world, running on almost all of the servers and all of the clients and to become the de facto standard for Linux," Seibt said. "To get to that goal, we have decided to team up with Novell, the company which has 20 years' experience in operation systems, which is close to the open-source community, with all of the software on top of the operating system stack, so that our customers and the customers from Novell can get the value out of that merger."
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