New York Times - Novell Seen As Takeover Candidate (8/30)
By Daniel Fisher
c.1996 Bloomberg Business News
The Bloomberg web site is at bloomberg.com )
PROVO -- Novell Inc. is likely to become a takeover target for
Netscape Communications Corp. or other technology companies
amid an extended decline in its revenue and share price, analysts said.
The maker of computer networking software is losing market share to
Microsoft Corp. and others as corporate customers switch from
Novell's aging NetWare 3.0 software to programs better suited for the
Internet. Some analysts expect Novell's annual revenue to fall 25
percent to $1.5 billion this year.
The declines spurred a crisis of confidence at the company, leading
Chairman and Chief Executive Robert Frankenberg to resign
Thursday. Novell shares, meantime, have dropped 47 percent in the
last year to below 11 as investors wonder whether the company will
succeed in winning over existing customers to new products.
``The stock could become so cheap that Netscape says, `Novell
couldn't get them to upgrade, but maybe we can,''' said John Oltsik,
an analyst with Forrester Research Inc.
A Forrester report this week speculated that Novell would be a good
purchase for Netscape, a leading maker of Internet software.
Netscape would benefit from Novell's installed base of more than 60
million users and its corps of highly skilled service technicians, the
report said.
Officials at Novell and Netscape dismissed the possibility of any such
merger or acquisition.
``I don't think they're interested and I know we aren't,'' said Steve
Markman, executive vice president and general manager of Novell's
products group. ``We believe we can be a force in the marketplace
only if we are independent.''
Even so, Provo, Utah-based Novell, whose market value fell to about
$3.7 billion from as much as $7.2 billion in September, is likely to be courted by a suitor, including perhaps computer maker
Hewlett-Packard Co., analysts said.
``I wouldn't be too surprised if they were taken over in the next year
or so,'' said Jean Orr, an analyst with A.G. Edwards & Sons in St.
Louis. Novell is having trouble convincing its corporate customers to
upgrade to NetWare 4.0, in part because older versions of NetWare
use proprietary technology for transmitting computer files that is
incompatible with the open standards of the Internet. Markman said
that problem has been solved with NetWare 4.0 and the company
believes a growing number of its customers are ready to make the
switch.
Forrester surveyed executives at 50 major corporations who felt
otherwise, however. That survey showed that while 90 percent used
NetWare, only 20 percent upgraded to 4.0 and 48 percent said they
expected to be using NetWare in three years.
``Novell has to articulate clearly that they have a vision about how to move their customers to the Internet-based world, if they want
network managers to stick around,'' said David Takata, an analyst
with Gruntal & Co.
Novell's Markman said the Forrester survey was ``pseudoscience''
and out of date. Novell's market research shows a much higher level
of acceptance, he said.
Either way, Novell faces tough times. Oltsik said the company has 18
months to turn its business around before it is relegated to serving a
dwindling number of customers using older versions of its software.
Novell will have to slash costs to maintain its profit margins as revenue falls, while simultaneously increasing marketing and
product-development activities, Oltsik said.
``Doing that means they're going to have to spend dough,'' Oltsik said.
``The market's not going to like that and so they could become a
bargain.''
To be sure, Novell still has more than $1 billion in cash and almost five times the revenue of Netscape, plus a commanding 60 percent share
of the corporate networking market. The company can capitalize on
those assets by seeking to establish its technology for managing and
transmitting files in computer networks as the industry standard, before rivals like Microsoft come up with their own, analysts said.
Novell could bolster its prospects by making some acquisitions as
well, Oltsik said. Possible targets include closely held Verisign Inc., which makes software used to safeguard commercial transactions on the Internet; and Sapient Corp., which helps design and install
computer systems for large corporations.
Novell could help pay for such acquisitions by selling off businesses
where it doesn't have a major market share, Oltsik added, such as its
ManageWise management software and GroupWise electronic mail
products.
If Novell could retain a dominant position in networking software, the
company could expand into a new generation of software used by
corporations to shuttle information throughout their far-flung computer networks, Oltsik and other analysts said.
If it fails, Netscape, Microsoft and other competitors will develop their own programs that do the same thing.
``And when that happens, it will be easy to rip NetWare out,'' Oltsik
said.
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