Novell to buy SuSE Linux

PROVO — Novell Inc. has been strengthening its ties to the Linux computer operating system since spring, but Tuesday's announcement that it would acquire Germany-based SuSE Linux for $210 million in cash is the biggest step so far.

Provo-based Novell hailed the move as a way to expand its ability to provide enterprise-class services and support on the Linux platform — one that is "open-source" instead of based on proprietary underpinnings.

Novell also said Tuesday that International Business Machines Corp. will invest $50 million in Novell convertible preferred stock, and that the companies are negotiating to extend IBM's current commercial agreements with SuSE Linux once the Novell acquisition is completed.

News of the moves pushed Novell stock as high as $8.80 on Nasdaq Tuesday. It closed at $7.33, up $1.28, or more than 21 percent, representing the highest closing figure for Novell in more than a year. The stock has been as low as $2.14 during the past year.

SuSE Linux provides Linux software and services and is generally considered the No. 2 Linux developer worldwide, trailing only Red Hat. Established in 1992, privately held SuSE Linux is based in Nuremberg and employs 399 people. Novell said the move will allow it to distribute the underlying Linux platform itself, in addition to products and services that support it.

"The deal makes sense from many angles. . . . Novell will now be the only $1 billion company offering a full Linux stack, from the server to the desktop, and a worldwide ecosystem to support it," Novell's chairman and chief executive officer, Jack Messman, said during a Tuesday news conference from Germany.

The transaction is subject to regulatory approval and the conclusion of shareholder agreements. Novell expects the transaction to close by the end of its first fiscal quarter in January.

Messman said the SuSE Linux brand will be maintained and that Novell will take a couple of months to determine the best way to fit SuSE Linux into Novell. He said the companies overlap only a little, mostly in administration.

SuSE Linux is expected to generate $35 million to $40 million in revenues this year. The transaction will be neutral to Novell earnings per share for fiscal 2004 and positive over the longer term, Messman said, adding that SuSE Linux' presence in Nuremberg will be maintained.