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Microsoft needs Novell

Analysis Why the buyout is not in its interests
Tue Mar 09 2010, 13:46

OPEN SOURCERERS may be getting worried about the recent announcement that Novell could be bought out by the investment outfit Elliott.

Elliott has a reputation of getting "maximum return on its investments", which is another way of saying an asset stripping operation. It has also offered a relatively small amount of cash for Novell, only $2 billion for the company, which has $1 billion in cash. However it is unlikely Novell will be able to tell this eight per cent shareholder to shove off unless the offer goes to a shareholder vote. By the time that happens, it is possible that there might be one or more other buyer(s) lining up.

Novell's SUSE Linux is lucrative with some good business customers. It might be flogged off to an outfit like Oracle, which could want a match for its other open source offerings, or IBM or HP.

But there are fears that if Novell goes, that could be the first domino which damages the commercial outfits based on Linux.

The next target might be Red Hat. Some think that if Novell's SUSE Linux business finds its way into Oracle's or VMware's or IBM's paws, it will be hard for Red Hat to remain viable as a stand alone company.

Certainly if one of the big corporate IT vendors gets its hands on SUSE then another one might want to acquire Red Hat to keep from being outclassed.

You might think that Microsoft, which does not want to touch Linux with a barge poll, would not want to flog it to its customers. However the Vole does make a fair bit of cash out of its relationship with Novell. While its street cred with the open source community is not very good, to say the least, it has put a bit of money into the relationship.

In addition, the Vole has a problem in that it is just a software company. IBM and its kind have been reinventing themselves as service companies that can push software along with hardware. The last thing Microsoft wants is for such service companies to be pushing Linux into the market where it sells its server products.

True, the likes of IBM and HP do that already, and most of them have deals with distributors. But with a strong brand like SUSE or Red Hat under their belts they could present very strong packages to businesses that do not include a sniff of Voleware.

So what is a Vole to do? Ironically it could end up in the somewhat unusual role of saving open source independence and a major commercial Linux distribution from being controlled by the likes of IBM, HP and Oracle.

If Novell and Red Hat remain viable as the independent companies they are now, then the status quo, which favours the Vole, will be maintained. Basically, buying a controlling share in Novell and perhaps also Red Hat would be a good defensive move.

Once the two companies are in Volish paws it can profit from every Linux sale that is made, rather than suffering.

What could go wrong with this cunning plan is that the open source community might throw up its collective hands and refuse to support SUSE or Red Hat software because of Microsoft's involvement. After all, in the community's mind, IBM, HP or Oracle would be a better master than the Vole.

If Microsoft can come up with a better way to prevent the sale of Novell to the vulture capitalist fund Elliott other than buying the company it will be much better off, but it will have to move fast. µ


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