The enterprise Linux space has suddenly got very interesting following the news that a bunch of sharp-suited New Yorkers have made an offer to buy SUSE Linux’s parent company, Novell. Whether or not they succeed, there can be little doubt that it’s cheerio and night-night for Novell, a business that has been doomed since, let’s be brutally honest here, everyone stopped buying NetWare.
OS Roundup: A New York hedge fund has made an offer to buy Novell. Is it paying $2 billion just for the Linux OS, or is there more to it? And, more importantly, will the offer bring other players to the fore? Perhaps Microsoft will end up the white knight in this strange tale.
The offer, from hedge fund outfit Elliott Associates, was for $5.75 per share, valuing Novell at a shade under $2 billion. But bearing in mind that the company has vast cash piles in various currencies, worth about $950 million, and the offer values Novell’s businesses at around $1 billion greenbacks.
What would Elliott be getting for its billion? SUSE Linux, to be sure, but also Novell’s various management, identity and security products. So more than just a Linux company, certainly. But not that much more: Novell may have its fingers in many pies, but it’s only the Linux pie that most people want to dip their spoon into.
Let’s contrast Novell with the other big enterprise Linux player: Red Hat, the company behind Red Hat Enterprise Linux. It, too, has more to it than a Linux distro — there’s the whole KVM-based virtualization side, not to mention JBoss middleware. Red Hat’s shares are currently trading around $30, valuing the company at well over $5.6 billion. Even allowing for around an estimated $950 million in cash and equivalents, this values Red Hat at more than $4.5 billion.
So for anyone interested in buying an enterprise Linux business, bids start at around $1 billion for SUSE, or more than $4.5 billion — and probably closer to $6 billion — for Red Hat. Put like that, SUSE looks inexpensive. In the clash of the Linuxes there’s little doubt that the majority believe Red Hat is the better one — but is it six times better, as the price differential (which admittedly includes all the “extras”) suggests?
What’s got the industry on the edge of its seat is whether Elliott’s bid will prompt more players to enter the fray. Commentators have suggested lots of names as white knights for Novell: IBM, perhaps, or Citrix? Or how about Cisco, or HP? Or even Microsoft?
Now there’s a thought. Microsoft, after all, has been paying for — or at least subsidizing — its customers to use SUSE Linux, by buying support coupons off Novell. Some $340 million worth of them. For three times that amount it could buy the whole company outright, flog or abandon the stuff it didn’t want, and keep the Linux business.
A billion dollars? That’s peanuts to Microsoft. It’s lost more than that down the back of the sofa. Seeing as how Microsoft accepts that it’s going to have to share the data center with Linux more and more over the coming years, it’s not complete nonsense to think that it might like to own one of its own. Given the outcry in the open-source community over the coupon deal Novell struck with Microsoft, you can only begin to imagine the mother of all rumpuses that would ensue if SUSE actually ended up in the Redmond bed, but these things have a habit of dying down eventually.
What happens if Microsoft doesn’t buy Novell, and SUSE gets sold off to somebody else? Where would that leave Microsoft’s plans to co-exist with Linux and learn from its customers that want to run an open-source OS as well? And what would happen to the fruits of its 2006 agreement with Novell: the joint research facility, the strides towards interoperability, virtualization compatibility and so on? The truth is, that might all have to be abandoned.
No doubt other companies will be running a ruler over Novell, but if Microsoft decides it wants Novell, it will be hard for anyone to stop it. That’s because Novell is probably worth more to Microsoft than anyone else, and Microsoft’s pockets are exceedingly deep. And for the other companies out there, well, there’s always Red Hat …
Paul Rubens is a journalist based in Marlow on Thames, England. He has been programming, tinkering and generally sitting in front of computer screens since his first encounter with a DEC PDP-11 in 1979.