Novell Inc. (NASDAQ: NOVL) is trading higher today on hopes that a higher buyout offer will be heading its way. There is at least some caution despite the notion that the company is a niche play that would be an interesting fit for many companies, but almost all indicators signal that higher price may be headed the way of Novell.
On March 2, 2010, Novell received roughly a $16 billion offer to go private from a private equity firm called Elliott Associates. Elliott is already a shareholder with an 8.5% stake, and Elliott’s offer was $5.75 per share in cash. It was clear from the start that Novell would not accept the offer and it did not take a rocket scientist to realize that Novell could not accept that buyout price. Elliott almost certainly knew this too.
After the offer, it was of little surprise that Novell then said it would explore its alternatives (a sale). What is interesting is that the WSJ today said that “as many as 20 companies have expressed interest.” Surprisingly, the Journal also noted that most firms with interest are private equity firms.
While getting some of the mountain of cash from overseas is not as easy as transferring the funds from one account to another, this company can almost entirely be self-financed at the current price by the right buyer.
As noted previously, Novell has a long history of trading higher than this offer. It also has a history of trading well under this $5.75 price. Its range of the last 52-weeks when the offer was given $2.97 to $5.05, and that new range is $3.84 to $6.15.
Our take is that it won’t take $10 to secure a buyout. But $5.75 is what hunters would call “a dog that won’t hunt” and it may require closer to $7.00 just to secure some of the old holders and to keep a class action suit from coming its way based solely upon share price.
And as far as options, the stock options world is calling for a higher price. The May $6 CALLS have only about 48 hours of life. Those are trading at $0.15 X $0.25, but the bid announcements are likely to not be made until after the expiration. This puts the June $6 CALLS as the focus, and those contracts trade at $0.30 X $0.35. Without knowing the option market makers’ order books it is impossible to say exactly what their implied price is. But on a static basis based on a mere snapshot in time, this means that any June-2010 Call buyer would expect that a bid of $6.36 or higher has to be the case or that a bid comes in under but with several parties asking to have a new round of bids.
Based upon watching Novell since the 1990’s as a stock and based upon many mergers before, it seems that many investors will be asking for more than $6.36. The company used to have far more value as it was literally on almost every PC at one time. That was then, but business is business. It seems as though that Elliott may make a pretty penny on its investment in Novell, although with someone else probably paying more for the company.
Novell looks like it will probably get a higher price. Most M&A stocks trade at a discount to their buyout offer if the deal looks like a done deal. There are of course no guarantees. With $5.75 already in-hand, a move by the company to secure a higher price, and with shares up almost 4% at $6.05, you do the math.
This is probably one of the final chapters, of what feels like a long novel.
JON C. OGG
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