Enterprise software maker, Novell, Inc. (NOVL) announced that its Board of Directors have rejected the unsolicited buyout offer of $2 billion or $5.75 per share in cash from Elliott Associates, L.P., the largest institutional stockholder of Novell.
Novell cited the offer to be inadequate and significantly below the company’s value, thereby undervaluing the firm. Novell shares fell 1.4% and closed at $5.64 yesterday.
The shares had soared 25.89% (or $1.23) to $5.98 in after-hours trading, just after the company made the offer public on March 4 that indicated positive investor sentiments regarding the takeover as investors hoped for a higher bid.
Elliott is an investment firm with over $16 billion in assets and holds approximately 8.5% of NOVL’s common stock.
The price represented a premium of 49% over the company’s current enterprise value, 77% over the company’s 90-day volume-weighted average enterprise value and a 115% premium over the company’s enterprise value on January 4, 2010, when Elliot planned to purchase Novell.
The offer price also represented a 37% premium to Novell’s closing stock price on January 4, 2010 and a 20% premium over the company’s closing price on March 2.
J.P. Morgan (JPM) is serving as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to Novell.
The Blue Harbour Group, an investment firm that owns 4% of Novell’s shares agreed with the company’s decision to reject Elliott’s bid as it believes that the offer is much below the company worth.
Novell said that it is considering other ways to increase shareholders value through share repurchase, dividend payout, joint ventures and alliances with other companies or via recapitalization.
Novell also said that it may look for other alternatives to sell itself outright to another entity. According to analysts, the deal may be subject to a competitive bidding process as it appears that larger companies such as Hewlett-Packard Company (HPQ), International Business Machines (IBM) and SAP AG (SAP) may bid for Novell. Microsoft Corp (MSFT) has also been cited as a potential buyer by analysts.
Novell is the no. 2 maker of the open-source Linux operating system. The company has struggled for a boost in its revenue, hurt by intense competition from Microsoft, Oracle Corp (ORCL) and Red Hat Inc. (RHT).
Novell’s balance sheet remains sound with no debt. The company exited the quarter with $991 million in cash and equivalents, representing almost 60% of current market capitalization.
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