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Novell to Buy SuSE Linux for $210 Million


From the company that turned away early Linux pioneers Bryan Sparks and Ransom Love, Novell Inc. is completing its reinvention by buying SuSE Linux AG for $210 million.

The transaction is subject to regulatory approval and the resolution of shareholder agreements. It all goes well; Novell expects the transaction to close by the end of its first fiscal quarter, in January 2004.

Novells move follows on the heels of its acquisition of open-source developer Ximian Inc. in August. These two acquisitions will make Novell, according to Novell representatives, the first billion dollar Linux software company.

In a Tuesday press conference from Germany, Novell CEO and chairman Jack Messman said that the deal will be good for both companies and their customers. He declared that SuSE was “the missing piece [for Novells recent embrace of Linux], the foundation itself, the platform.”

“Today, we plugged that. With SuSE we get one of the top two commercial Linuxes. Together, we can significantly accelerate Linuxs enterprise acceptance.”

Messman said SuSE was a strategic fit for Novell given its technical Linux distribution, staff, and number two position in the marketplace. Together, Lowry declared, “we can soon become the number one Linux company.”

The move was not just about Linux, the officials said. Throughout the press conference, Messman and Novell Vice Chairman Chris Stone, emphasized Novells complete support for open-source software and the continued work of SuSE employees on open source projects.

Richard Seibt, CEO of Nuremberg, Germany-based SuSE, said “our goal and vision was to see SuSE running everywhere in the world, to become the de facto standard for Linux. To get to that goal, weve teamed with Novell with its twenty years of experience. Our customers will get great value from Novells worldwide support and business partners that can support them locally.”

Seibt assured SuSEs customers that “Novells global reach, marketing expertise, and reputation for security, reliability and global enterprise-level support are exactly what weve been seeking to take SuSE Linux to the next level.”

In contrast to Linux vendor Red Hats recent decision to focus exclusively on the enterprise space, Novell will deliver both desktop and server distributions of the open-source OS drawing on Ximian Inc.s and SuSEs product lines.

Novell will also turn its worldwide technical support staff and resellers to support Linux. In particular, Stone pointed out that Novells approximately 25,000 worldwide reseller channel partners will be “great for Linux and that Linux will be great for them.”

At the same time, however, he admitted that while there is much crossover between SuSE and Novell resellers, few Novell resellers are currently trained in Linux. That said, SuSEs Seibt pointed out that supporting Linux could be as big a moneymaker for resellers.

In addition, Novell is negotiating with IBM Corp. to continue SuSEs eServer commercial agreements. IBM and Novell will apparently continue to follow SuSEs path as a major IBM Linux partner; Novell also announced that IBM intends to make a $50 million investment in Novell convertible preferred stock as soon as Novell officially acquires SuSE.

Officials from third-party vendors also praised the deal. Stone predicted that with Novells long history of working with original equipment manufacturers (OEM)s and independent software vendors (ISV)s, many such companies will now embrace Linux.
The move was “excellent for the industry,” according to Sam Greenblatt, Senior Vice President and Chief Architect of Computer Associates International Inc.s Linux Technology Group. “The excellent global support that Novell brings to the open source community will help continue market adoption of Linux from the desktop to the server.”

Analysts were mostly upbeat about the acquisition.

Gary Barnett, Research Director with London-based Ovum Ltd. said the announcement was extremely important for Linux and Linux adopters. “It propels SuSE into the big league in terms of its ability to deliver product innovation and customer support. SuSE now represents a serious and credible threat to Red Hat for market leadership – and as a result users of both distributions are set to benefit,” Barnett said.

Novell may have an uphill climb according to Bill Claybrook, the Boston-based Aberdeen Groups Research Director for Linux and Open Source.

“My feeling is that this is good for Novell and its Linux business.” Claybrook said. However, “if I were a company deciding between Red Hat and SuSE after Novell buys SuSE, I would be wondering what will happen to SuSE Linux longer-term. I think that SuSE Linux will have a very difficult time, even with the acquisition, overcoming the brand recognition of Red Hat.”

Dan Kusnetzky, IDC vice president for system software research, considered that a Linux distribution was just what Novell needed. “Novell has a very strong services offerings based on a declining platform. They needed to focus on a growing market and Linux is their chance.”

“This is a win for Novell if they can move at Internet speed and manage the corporate culture adjustments,” Kusnetzky continued. “With this move, Novell has put itself on Microsofts front burner and they need to move quickly to integrate Linux with their offerings.”

As for SuSE, Kusnetzky said, “SuSE needed capital. They were doing well for a Linux distribution but it still wasnt that much money. Now, SuSE will be another business line with a worldwide software and services company and this really expands SuSEs opportunities.”

A version of this story was published in eWEEK.

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