Novell's Acquisition of Wordperfect and Quattro Pro Stirs Concerns Among Investors

As Novell Inc.'s shares continued to decline, investors expressed growing unease about the company's planned acquisition of Wordperfect and the Quattro Pro spreadsheet business of Borland International Inc. Analysts warned that the merger could falter if Novell's share price fell too low, citing concerns about the deal's terms, the company's shift into the applications business, and the absence of any clear strategy for integrating the acquired companies.

Key Takeaways:

• Novell's shares closed at $19, down $1, on extremely heavy volume of 21.8 million shares in Nasdaq trading.
• The company plans to swap 59 million shares for privately held Wordperfect and pay $145 million in cash for Quattro Pro.
• Analysts question the terms of the deal, which include a payment of over two times revenues for Wordperfect, a company with profit margins lower than Novell's core business.
• The acquisition raises concerns about the future of Novell's leadership, as Chairman and CEO Raymond J. Noorda is set to step down before turning 70 in June.
• Many analysts are puzzled by Novell's decision to enter the applications business, citing the impending obsolescence of individual software applications due to the rise of "office suites."
• The acquisition deal has already lost 20% of its original value, from $1.4 billion to $1.12 billion, due to the decline in Novell's share price.

Statistics:

• 21.8 million shares of Novell stock were traded on Nasdaq on the day the announcement was made.
• The deal originally valued at $1.4 billion has dropped to $1.12 billion due to the decline in Novell's share price.
• Novell's shares have fallen $3.75 on the day after the announcement, cited as extremely heavy volume, and down $1 in the day of that announcement.
• Wordperfect has a mid-teens growth rate, but low profit margins.
• 59 million shares of Novell stock were set to be swapped for Wordperfect, initially worth approximately $1.4 billion.
• Novell will obtain one million copies of Borland's Paradox data base as part of the Quattro Pro deal.

Sources:

• "Investors are irate and they voted with their shares," - David Readerman, analyst with Lehman Brothers.
• "This is about what we anticipated," - Adrian Rietveld, president and chief executive of Wordperfect.
• "This looks to us like a rear guard action on Novell's part that could be more motivated by a mistaken desire to go head-to-head with Microsoft than part of a strategy to conquer new lands," - Rich Edwards, analyst with Robertson, Stephens & Company.
• "Are they overpaying?" - Paul Johnson, analyst with First Boston.