Elliott offers to take Novell private for $2 bln

BANGALORE (Reuters) - Investment fund Elliott Associates offered to buy business software maker Novell Inc NOVL.O for $2 billion, sending its shares up 28 percent as investors hoped for a better bid.

Elliott, which already owns 8.5 percent of Novell, offered to pay $5.75 a share, or a premium of 21 percent over its Tuesday closing price.

Shares of Novell shot up to $6.10 in extended trading, as investors bet on a higher bid for the company, which has been hurt by competition and struggled to boost sales.

"The deal price is on the low side compared to recent deals that were transacted in the enterprise software space," Cross Research analyst Richard Williams said. "So we would expect to see either a higher bid down the road and or other bidders coming in."

Companies such as HP (HPQ.N), SAP (SAPG.DE), Microsoft (MSFT.O) and IBM (IBM.N) could swoop in with a rival bid, Williams said.

Pacific Crest Securities analyst Nabil Elsheshai said he does not expect a bid from a technology company for Novell, but wouldn't be surprised to see a slightly higher offer from Elliott.

"It's fairly inexpensive relative to other software enterprise companies, but it's not surprising given Novell's growth profile," Elsheshai said.

In 2009, Novell's revenue declined about 10 percent.

Ahead of the offer, Novell had a market capitalization of about $1.7 billion. It has a cash balance of nearly $1 billion.

Novell declined to comment on the news, but said it would issue a public statement later in the day.

"Over the past several 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," Elliott said in a letter addressed to the Novell board.

"As a result, we believe the company's stock has meaningfully underperformed all relevant indices and peers," Elliott added.

Elliott, an investment firm with over $16 billion in assets under management, has gone after undervalued companies before and has targeted other technology firms, including Epicor and Packeteer.

Epicor has since been purchased by Blue Coat Systems BCSI.O and Metrologic was acquired by Honeywell (HON.N).

"It seems in this instance they are buying an undervalued company and looking to break it up and capture the unrealized value from the assets," Williams said. "We believe there is $6 a share worth of undervalued assets."

Novell's key rivals include Microsoft (MSFT.O), IBM (IBM.N), Oracle (ORCL.O), HP (HPQ.N), Symantec (SYMC.O) and Red Hat (RHT.N).

Novell's customers include Wal-Mart Stores Inc (WMT.N), Wyndham Worldwide Corp (WYN.N) and Casio Computer (6952.T), according to its website.

(Additional reporting by Anupreeta Das in New York; Editing by Anil D'Silva)