Novell Session at Cloud Expo

After Wall Street closed yesterday, Elliott Associates LP, a hedge fund with $16 billion under management, made a reportedly unsolicited bid to buy Novell, the Linux operating system’s lackluster number two champion, for what looks like about $2 billion and take it private.

It’s offering $5.75 a share cash, a 20% premium over Novell’s $4.75 closing price Tuesday.

With Novell’s roughly billion dollars in the bank, the hedge fund described its bid as valuing the business at $1 billion net or “49% over the company’s current enterprise value and 77% over the company’s 90-day volume-weighted average enterprise value.”

Heck, it’s 115% more than Novell was at on January 4 when Elliott started buying its stock. It now owns about 8.5% of the company, making it one of Novell’s largest shareholders.

Elliott figures it’s being generous since the money Novell has in the bank represents 60% of its $1.66 billion market cap and much of it is stashed overseas “and may not be realized in a tax-efficient manner.”

Ironically the offer came a mere six days before Novell is supposed to go to trial over its claim to own the Unix copyrights and defend its treatment of SCO. If allowed to go to the jury, the decision could take a bite out of Novell’s saving account.

However, the stock market expects Novell to go for more than $5.75 a share. After hours, its price was bid up to $6.11 a share, a height Novell hasn’t seen in a long time.

In its letter to Novell’s board the hedge fund said that in its opinion over the past few years “the company has attempted to diversify away from its legacy division with a series of acquisitions and changes in strategic focus that have largely been unsuccessful. As a result, we believe the company’s stock has meaningfully underperformed all relevant indices and peers.”

It wants to start due diligence right away and asked for a meeting to work out a definitive agreement and sort out management’s role going forward.

It took Novell several hours to acknowledge the bid and say it would review the “conditional proposal.” It’s got JP Morgan as its financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel.

Novell turned in numbers last week showing that its revenues were down 6% in the January quarter to $202.4 million although it was able to double earnings to $20.2 million, or six cents a share.

Neither figures met Wall Street expectations of seven cents on $207.6 million in revenue. And more of the same is coming. Novell is projecting sequentially flat revenues this quarter, again shy of expectations, and a non-GAAP operating margin of 12%-15%.