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Intelligence Report:	Novell Sold to Attachmate and Microsoft
Report Date:	November 24, 2010
Analyst:	Shimmin, Brad
Service:	Business Technology and Software
Market:	Collaboration Platforms

Quick Take

Competitive Positives

• Novell will remain an independent entity within Attachmate
• Acquisition lends stability to Novell
• Cross-selling opportunities within Attachmate key markets
• Focus on open source bodes well for select collaboration projects

Competitive Concerns

• Novell's collaboration portfolio stands out as a sore thumb
• Attachmate's acquisition of Novell is anything but ordinary
• Novell's highly experimental approach unwelcome?
• Attachmate lacks SaaS experience
• Independence of SuSE software may cut bundling opportunities

Event Summary

November 22, 2010 - Novell announced that it has entered into a definitive merger agreement under which Attachmate Corporation would acquire Novell for $6.10 per share in cash in a transaction valued at approximately $2.2 billion. Attachmate Corporation is owned by an investment group led by Francisco Partners, Golden Gate Capital and Thoma Bravo. Novell also announced it has entered into a definitive agreement for the concurrent sale of certain intellectual property assets to CPTN Holdings LLC, a consortium of technology companies organized by Microsoft Corporation, for $450 million in cash, which cash payment is reflected in the merger consideration to be paid by Attachmate Corporation.

View Full Press Release

Novell Agrees to be Acquired by Attachmate Corporation WALTHAM, Mass. 22 Nov 2010 Novell, Inc. (NASDAQ: NOVL), the leader in intelligent workload management, today announced that it has entered into a definitive merger agreement under which Attachmate Corporation would acquire Novell for $6.10 per share in cash in a transaction valued at approximately $2.2 billion. Attachmate Corporation is owned by an investment group led by Francisco Partners, Golden Gate Capital and Thoma Bravo. Novell also announced it has entered into a definitive agreement for the concurrent sale of certain intellectual property assets to CPTN Holdings LLC, a consortium of technology companies organized by Microsoft Corporation, for $450 million in cash, which cash payment is reflected in the merger consideration to be paid by Attachmate Corporation. The $6.10 per share consideration represents a premium of 28% to Novell's closing share price on March 2, 2010, the last trading day prior to the public disclosure of Elliott Associates, L.P.'s proposal to acquire all of the outstanding shares of Novell for $5.75 per share and a 9% premium to Novell's closing stock price on November 19, 2010. "After a thorough review of a broad range of alternatives to enhance stockholder value, our Board of Directors concluded that the best available alternative was the combination of a merger with Attachmate Corporation and a sale of certain intellectual property assets to the consortium," said Ron Hovsepian, president and CEO of Novell. "We are pleased that these transactions appropriately recognize the value of Novell's relationships, technology and solutions, while providing our stockholders with an attractive cash premium for their investment." Mr. Hovsepian continued, "We also believe the transaction with Attachmate Corporation will deliver important benefits to Novell's customers, partners and employees by providing opportunities for building on Novell's brands, innovation and market leadership." "We are very excited about this transaction as it greatly complements our existing portfolio," said Jeff Hawn, chairman and CEO of Attachmate Corporation. "Novell has an established record of innovation, impressive technology and brand assets, and a leading ecosystem of partnerships and talented employees. The addition of Novell to our Attachmate and NetIQ businesses will enhance the spectrum of solutions we can offer to customers. We fully support Novell's commitment to its customers and we look forward to continuing to invest for the benefit of Novell's customers and partners." Attachmate Corporation plans to operate Novell as two business units: Novell and SuSE; and will join them with its other holdings, Attachmate and NetIQ. Attachmate Corporation's acquisition of Novell is subject to customary closing conditions, including regulatory approvals and clearance under the Hart-Scott-Rodino Act, and is also conditioned upon the closing of the proposed sale of certain intellectual property assets to CPTN Holdings LLC. In addition, the transaction is subject to approval by Novell's stockholders. The sale of the intellectual property assets to the consortium is subject to customary closing conditions, including regulatory approvals and clearance under the Hart-Scott-Rodino Act, and is also conditioned upon the closing of the merger with Attachmate Corporation. Novell currently expects these transactions to close in the first quarter of 2011. J.P. Morgan is serving as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to Novell. Credit Suisse and RBC Capital Markets are serving as financial advisors and Jones Day is acting as legal advisor to Attachmate Corporation.

Analytical Summary Perspective

• Moderate on the pending sale of Novell to Attachmate and the concurrent sale of select Novell intellectual property (IP) to CPTN Holdings, because the transaction does not elucidate a compelling way forward for Novell's collaboration portfolio as it exists today. Given Microsoft's involvement in the purchase and Attachmate's focus on legacy modernization and integration, the future of Novell GroupWise, Conferencing, Vibe and other products will remain unsure at best for the coming months.

Vendor Importance

• Very high to Novell, as the company has struggled over the past decade to remain relevant within the productivity and collaboration space in the shadow of Microsoft's dominant desktop position behind Office, Exchange and SharePoint. The company has also struggled to embrace current market trends toward software-as-a-service (SaaS) only recently introducing a beta collaboration service (Novell Vibe Cloud). While Attachmate does not excel in these areas, as a privately owned 30 year old company with more than 65,000 customers, the company at least promises to lend Novell a sense of financial stability.

Market Impact

• Very high on the collaboration platform market, as the acquisition of Novell by a company with no experience within the collaboration space will give rival firms ample room to position the acquisition as a complete mismatch. There are also many questions swirling around the acquisition, particularly pertaining to concurrent sale of Novell IP to a consortium (CPTN Holdings) built by Microsoft, which will foster further instability for Novell going forward.

Competitive Strengths Competitive Positives

• Despite the many unorthodox and potentially contentious aspects of this acquisition, Attachmate's public statement that it would operate Novell within two business units (Novell and SuSE) bodes well for the continuation of Novell's collaboration software as a standalone entity. The Novell business unit will join Attachmate's existing standalone entity, NetIQ, which Attachmate purchased in 2006. This further positions Attachmate Corporation as a holding company rather than an entity with which Novell must merge.

• The acquisition of Novell for approximately 2.2 billion dollars actually lends stability to Novell's collaboration portfolio as it puts to bed market uncertainty that has swirled around Novell since it began considering a sale in March 2010 when Elliott Associates made an initial bid for the company. While there is little information available regarding product plans, the acquisition marks a turning point toward a potential outcome that improves greatly upon the future predicted by Novell's past financial struggles.

• While there is little advantageous overlap between Novell and Attachmate from a collaboration platform perspective, the new Attachmate Novell business unit stands to benefit from Attachmate's deep and longstanding penetration within collaboration-friendly market segments including contact center, managed file transfer and airline travel. Assuming sales, marketing and support channels of communication will exist between Novell and Attachmate, the affinity the two companies have established with corporate IT shops will foster cooperative opportunities.

• As when Oracle acquired Sun Microsystems' Java and MySQL open source (OS) projects, Attachmate's acquisition of Novell SuSE Linux gives the company a box seat at the open source software show, a platform upon which it can modernize its entire portfolio. Underscoring the importance of OS to Attachmate, the company has already pledged its continued support for Novell SuSE's underlying OS, openSUSE project. And it has committed to running SuSE software as a completely independent business unit. This bodes well for the various collaboration OS projects utilized by Novell, such as DimDim, Kablink and Vibe.

Competitive Weaknesses Competitive Concerns

• Considering Attachmate's product set (terminal emulation, managed file transfer, fraud management and legacy modernization), Novell's collaboration portfolio stands out as a sore thumb compared to the company's other areas of concern (data center, identity and security and desktop management). This substantial mismatch calls into question the long-term status of Novell's collaboration portfolio within Attachmate, leaving room for speculation that Attachmate might seek to subsequently sell software with which it is not familiar.

• Attachmate's acquisition of Novell is anything but ordinary. The merger, which is expected to close in Q1 2011 is very straightforward. However, it is also contingent upon the closing of the proposed sale of Novell intellectual property (IP) to CPTN Holdings, a consortium of technology companies organized by Microsoft. This contingent sale carries with it a number of unanswered concerns surrounding the consortium's founding and ultimate purpose. Unrest, particularly within the Linux community, stemming from CPTN's involvement may not stall the closure of the overall acquisition, but it will disrupt Attachmate's overall efficacy.

• Considering Attachmate's history as a company built and maintained through acquisition rather than internal research and development, the company's ability and willingness to continue Novell's highly experimental and partner-friendly approach to engineering can be called into question by rivals. Novell has shown a great deal of flexibility over the past 12 months, revamping some products (e.g., Novell Pulse for Vibe) and starting over with others (switching to partner-based Web conferencing). These efforts require entrepreneurial, top-down investments, not just business unit independence.

• Similarly, Attachmate's lack of experience within the software-as-a-service (SaaS) space will either slow or disrupt Novell's fledgling efforts to move its collaboration platform online. Already Novell has fallen significantly behind rivals Microsoft, IBM, Jive and others in offering a true SaaS solution. Novell only unveiled a beta service (Novell Vibe Cloud) earlier in November 2010 (See Novell Introduces Real-time Collaboration, Again, November 15, 2010). Such services require substantial engineering and resource investments, two resources that are hard to come by during an acquisition.

• Attachmate's decision to place Novell's SuSE Linux within a standalone business unit sets the stage for a decoupling of Novell's current efforts to capitalize upon the popularity of SuSE Linux in marketing its collaboration and productivity solutions. For example, Novell's SUSE Linux Enterprise Desktop currently bundles OpenOffice.org 3.2 Novell Edition and Novell Evolution E-mail and Calendaring (which connects with Novell GroupWise). Independent business units historically show a predilection for independence not cooperation. This move can also presage a possible sale of SuSE or Novell at a later time.

Response & Recommendations

• All players vendors within the collaboration platform space should position this acquisition as a very precarious arrangement weighed down by a great number of potentially contentious unknowns such as the role played by Microsoft in the deal as a whole. Even without such intrigue, collaboration players should highlight the fact that the acquisition will take a great deal of time to settle before Attachmate can present potential and existing Novell customers with a clear and compelling technological and go-to-market roadmap.

• Rival collaboration players including Microsoft, Google, Oracle, IBM and Jive should call attention to the philosophical and historical mismatch between Novell and Attachmate as a significant stumbling block for Attachmate should it decide to continue Novell's collaboration portfolio. Attachmate has, for example, no experience within the collaboration marketplace, and it has very few if any points of affinity between its own products and Novell's collaboration offerings.

• Attachmate should consider selling the Novell collaboration portfolio in part or whole to a third party. Assuming Attachmate isn't being backed by Microsoft in this endeavor, the company should consider selling Novell's emerging Vibe platform to VMware as this would directly complement the company's Zimbra productivity/messaging suite.

• Attachmate cannot wait until 2011 to reveal product-specific plans for Novell's collaboration portfolio. The company should take a page from a highly acquisitive company, Oracle, and issue a public statement promising continuity and continued support for Novell products over the long term. Without such a statement, the idiosyncratic nature of this acquisition alone will stall all existing purchase cycles and deflect potential product interest.

• Microsoft should clarify its involvement in the acquisition as a whole and outline its long-term intentions regarding the IP assets acquired from Novell through CPTN Holdings. Microsoft may have staved off a potential threat within the virtualization space should VMware have acquired Novell, but the company now stands to lose further ground within the Linux community, depending upon how it manages this IP.

Buyer Actions

• Existing Novell collaboration customers should sit tight, awaiting further word from Attachmate concerning its product rationalization, continuation and integration plans. While the vendor has not shed much light on specific products, it has made a general commitment to preserving Novell's overall portfolio over the short term.

• For these same reasons, potential customers considering Novell should wait for the dust to settle from what is turning out to be a very unorthodox and controversial acquisition, particularly concerning the Linux operating system and the involvement of Microsoft in IP transference to CPTN Holdings.

• Existing partners and partners licensing Novell technologies should certainly investigate fall-back options, should the sale of Novell IP to CPTN Holdings prove ultimately untenable. However, partners and customers should note that Attachmate has publicly said that customers will continue to be authorized to license any IP that now belongs to CPTN Holdings.

Analytical Perspective

We are taking a moderate stance on Attachmate's proposed acquisition of Novell for approximately 2.2 billion dollars. Slated for closure during Q1 2011, this acquisition will lend some stability to the Novell brand. The company has been very slow to move in some areas, such as the adoption of software-as-a-service, but it has been very quick in others, such as the adoption of real-time collaboration (See Novell Introduces Real-time Collaboration, Again, November 15, 2010). Additionally, this acquisition puts to bed market uncertainty that has swirled around Novell since it began entertaining acquisition offers in March 2010 when Elliott Associates made an initial bid for the company. While there is little information available regarding Attachmate's overall product plans, the acquisition marks a turning point toward a potential outcome that improves greatly upon the future predicted by Novell's continuing financial struggles.

However, this acquisition is anything but straightforward. There is a conditional, concurrent transaction attached to the acquisition that calls for the transference of intellectual property (patents, copyrights, trademarks, etc.) from Novell to CPTN Holdings, a consortium recently established by Microsoft. This contingent sale carries with it a number of unanswered concerns surrounding the consortium's founding and ultimate purpose. Unrest, particularly within the Linux community, stemming from CPTN's involvement may not the closure of the overall acquisition, but it will disrupt Novell's overall efficacy. Further diminishing Novell's ability to market collaboration software post-purchase is the fact that Novell and Attachmate do not match up technologically or ideologically. For example, when compared with Attachmate's product set (i.e., terminal emulation, managed file transfer, fraud management and legacy modernization), Novell's collaboration portfolio stands out as a sore thumb compared to its other areas of concern (i.e., data center, identity and security and desktop management). This substantial mismatch calls into question the long-term viability of Novell's collaboration portfolio, leaving room for speculation that Attachmate might seek to subsequently sell software with which it is not familiar.

These issues aside, both Attachmate and Novell have established a firm foothold within IT shops, garnering more than 65,000 and 50,000 customers respectively. This will create cross-sell opportunities, particularly given Attachmate's deep and longstanding penetration within collaboration-friendly market segments such as contact center, managed file transfer and airline travel. And despite the many unorthodox and potentially contentious aspects of this acquisition, Attachmate's public statement that it would operate Novell within two business units (Novell and SuSE) bodes well for the continuation of Novell's collaboration software as a standalone entity. The Novell business unit will join Attachmate's existing standalone entity, NetIQ, which Attachmate purchased in 2006. This further positions Attachmate Corporation as a holding company rather than an entity with which Novell must merge. Still, these benefits will not help the Novell business unit in its struggle to remain relevant within a highly competitive collaboration platform space, particularly in the shadow of Microsoft's desktop dominance, not to mention Microsoft's controversial involvement in this acquisition. With such complexities, the future of Novell GroupWise, Conferencing, Vibe and other products will remain unsure at best for the coming months.