Elliott Associates and the takeover of Novell

Very interesting blog post by Andy Updegrove on this topic that you may want to read. I’ve included a few paragraphs below:

…Elliott is in a far better position than Novell's board and management, or of a technology company that may make a bid, so long as Elliott retains self-discipline and walks when the bidding exceeds the internal calculation that it has already certainly made that reflects a prudent purchase.

But these other chess players do have their own advantages.  First up, no one at Novell is going to want to be acquired by Elliott.  Why?  Because Elliott will almost certainly want to break Novell up and sell the pieces.  Indeed, while it has offered $2 billion for Novell, it has already acquired over 8% of Novell at a significant discount off that per-share bid number.  And Novell has almost $1 billion in cash.  So the rewards of a quick hit, followed by a quick breakup, make far more sense than trying to turn around the business of a company that has been struggling to reinvent itself for over 15 years.

What that means is that one would imagine that Novell's talent will be heading for the exits in droves if the Elliott bid looks like it might succeed.  Even if Elliott convinces the target that it plans to run the Company in the long term, the prospect of being managed by a fund with a reputation as a "Vulture Capitalist" better known for buying distressed third world debt is hardly likely to inspire loyalty.

Check out the rest of Andy’s post. It is well worth the read.

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