MESSAGE
| DATE | 2005-09-16 |
| FROM | From: "Inker, Evan"
|
| SUBJECT | Subject: [NYLXS - HANGOUT] Novell under pressure from investors
|
Novell under pressure from investors
15th September 2005
By Matthew Aslett
http://www.cbronline.com/article_news.asp?guid=0142D6B9-0B2B-4ACC-8C0E-F4F5A
2CB4497
The pressure is growing on Novell Inc's management to make major strategic
changes after a regulatory filing revealed a Novell shareholder has joined
Credit Suisse First Boston in calling for change at the identity management
and Linux vendor.
Investment firm Blum Capital Partners LP owns or controls 5% of Waltham,
Massachusetts-based Novell's outstanding shares, according to the filing,
and has repeatedly called on Novell to take steps including cutting costs,
divesting non-core businesses, and implementing a share repurchase program.
The filing with the Securities and Exchange Commission reveals that San
Francisco, California-based Blum met with Novell's chairman and CEO, Jack
Messman, in May to outline its proposals, and followed up with two letters
in June and one on September 6, 2005.
Despite the correspondence between Mr Messman and Blum, it appears that the
investment firm is running out of patience with the software company's
management. "We are disappointed in not only your failure to consider our
proposals but also at the clear lack of urgency in implementing a strategic
plan," wrote Blum in his latest letter.
"Over two months have elapsed since your last response, and we have been
discouraged by Novell's recent progress towards what we believe should be
the company's goals," it added. The letter coincided with a call from
financial analyst house Credit Suisse First Boston for Novell to improve its
vision, strategy, and execution in order to become a more profitable
business.
The steps proposed by the investment firm include cutting costs by targeting
Novell's two corporate jets, its "overstaffed" R&D department, legacy
products, and its 400 or so NetWare engineers, as well as selling non-core
businesses to enable funds to be redeployed.
Blum estimates that Novell could generate $175m through its Celerant
Consulting affiliate, $150m through the ZENworks systems management business
(including Tally Systems Corp, acquired in March for an undisclosed fee),
$100m via GroupWise, and $75m via its Cambridge Technology Partners
consulting and systems integration business.
The investment firm has also called on Novell to increase its investment in
Linux and open source software through partnerships and acquisitions to move
"further up the stack", and added that "it confounds us" why Novell has yet
to implement its final proposal: a $500m share repurchase program.
Blum's proposal is broadly similar to CSFB analyst Jason Maynard's
suggestion that Novell should focus on software services rather than
consulting, increase its emphasis on open source software, and repurchase
company stock, although Blum stopped short of Mr Maynard's suggestion that
Novell should bring in new management.
Nevertheless, the proposal will increase the pressure on Mr Messman, who has
admitted that the company is in the middle of "complex transformations" that
are making life tough as it transitions to focus on Linux and identity
management software.
While Novell's core NetWare business had been in decline for some time, it
at least was providing a strong maintenance business that Novell could rely
on. Now that it has moved into a fast-growing area following its acquisition
of SUSE Linux and Ximian, Novell has to take a different approach to the
market and is in the midst of revamping its sales channels.
Given the rapid growth of Linux, and particularly Novell rival Red Hat Inc,
the expectation is that Novell will start to move into growth mode, but in
announcing disappointing revenue results at the end of August, the company's
top brass also warned that they were only halfway through a two-year
transformation process, and that investors should expect more bumps in the
road.
The company's CFO, Joe Tibbetts, added that Novell would announce another
restructuring in its fiscal fourth quarter - following 120 layoffs in early
August - but would not elaborate on how deep or where the cuts will be made.
It remains to be seen whether those cuts alone will be enough to take the
pressure off Mr Messman.
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