Elliott Associates and Novell: All About a Game of Cat and Mouse

“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.

“This, of course, will lower the sale value of the business
units that Elliott would be hoping to sell, and damage any
remaining units that it might choose to continue to run for any
period of time. Indeed, for this reason unsolicited tender offers
for technology companies, even by other technology companies, were
almost unknown until IBM made a hostile tender for Lotus in 1995.
IBM made a major effort to make that combination work, and largely
succeeded. But hostile offers remain rare in technology for this
reason.”

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