Novell (NOVL) dirt cheap, good buy? Message Board

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Technology Stocks : Novell (NOVL) dirt cheap, good buy?

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To: Vip who wrote (16153)	8/23/1997 4:43:00 PM
From: Jim McCormack	of 42771

No Insider Buying = No deals I'm glad everyone is feeling good. Traders are happy because the buyout rumor will bouy the stock next week as the press features it. It is good for a trade but thats it. I don't think the arguement holds water: The lack of insider buying is a real negative for the buyout scenario. That means it that from day one the management knew they would be going this alone. That story hasn't changed. If fact they are better positioned to remain independent now that all the financial house cleaning is over. Any deal would have to be very very attractive in order to change managements view. You would have done the buyout when management was brooding over the need to take the 55 million dollar charge. They would have been more receptive to an offer. Now the news is out and no harm has occured in the market they in essence got another vote for continuing the "Go it alone" strategy. A prime example for a Novell takeover is the Lotus buyout by IBM. The sales of the old products were nose diving while Notes showed signs of being a blockbuster. IBM did the research and waited - waited for the stock to drift lower ( management to feel heat ) and the product shipments for Notes to reach critical mass. When the market punished LOTS for another quarter of poor earnings IBM made the bid - stock was 30 dollars Friday and on Monday it was 60. They paid an enormous premium for Notes. Everyone questioned the price. The fact was that was what they had to pay whatever it took to convince management to sell - they had always maintained they would not sell out. Price can solve the managements reluctance.... Notes went on to do exactly what they thought - it is a blockbuster in terms of product and consulting/Service dollars. One of the best technology mergers ever in my opinion. The timing was everything. Where is the block buster product in NOVL? IBM new they could sell Notes to the IBM installed base. They didn't want the Lotus installed base they wanted the products. You would not pay the premium required for a "Friendly" merger in order to aquire Netware and the installed base. You have to get a very promising product with a large revenue potential to justify the premium required to persuade management to sell (and your shareholders from suing you for paying too much) For the buyout to work you have to wait and see what happens with MOAB and the other new products. If products like BorderManager and Groupwise 5.2 begin to sell well into the existing installed base - then the installed base is worth something. If MOAB solves the upgrade problem and begins to show signs of taking off then that too would make NOVL worth buying. At any rate the time is not right for a take out. An interested party will let the revenue slump run its course for two more quarters. They will watch the new products closely. If any of them look promissing they will step up thier efforts. Management will soften up and second guess the go it alone strategy as the revenue slump continues and the time will be right for entertaining an offer. The offer would still need to be a premium but not as high a premium as would be required today...... So settle in and wait - it won't be until mid 98 until we know what will transpire. Conclusion: 1 . No buyout till next year - if at all 2. It will only happen if new products or upgrading begins within the installed base. You need a product that is growing in terms of revenue not shrinking in order to interest someone enough to pay the premium required to management to sell. 3. A substantial premium $22 a share or perhaps higher will be required to get NOVL during 1997 in my opinion. In 1998 it will be lower - two more tough quarters will soften management up for a sale.

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