Novell rejects $2 bn Elliott Associates offer

Novell Inc spurned a USD 2 billion takeover offer from investment fund Elliott Associates on Saturday, calling the bid inadequate and saying it undervalued the business software maker.

Novell said its board had instead initiated a review of alternatives, including a share buyback, cash dividend, joint ventures, recapitalization, alliances or an outright sale.

Elliott Associates announced its USD 5.75 a share offer on March 2, sending Novell's stock soaring 28% as investors hoped it would trigger a bidding war and put the world's No 2 maker of the open source Linux operating system into play.

"It undervalues the company's franchise and growth prospects," Novell said in a statement.

The Blue Harbour Group, which owns 4% of the company, agreed with the board.

"We support the company's decision today to pursue a formal review process with the assistance of its advisors," the investment firm said in a separate statement.

Analysts say large software makers may consider bidding as they could sell their business programs alongside Novell's version of Linux, used widely by financial institutions and telecommunications carriers.

Companies including HP, SAP and IBM could swoop in with a rival bid, analysts say.

Elliott, which already owns 8.5% of Novell, had offered at the time to pay a 21% premium for a company that has been hurt by competition and struggled to boost sales. In 2009, Novell's revenue declined about 10%.

Shares in the company -- which has nearly USD 1 billion in cash and saw its stock surge above USD 6 in the wake of the bid -- closed on Friday at USD 5.64.

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

Novell's key rivals include Microsoft, Oracle Corp and Red Hat Inc, while customers range from Wal-Mart Stores Inc and Wyndham Worldwide Corp to Casio Computer.

JPMorgan is serving as Novell's financial adviser.