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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: doug doan who wrote (5117)11/23/1996 12:32:00 PM
From: E_K_S   of 42771
 
Doug - Your analysis seems to match with mine but I have used a modified 'Graham' valuation model. I am still going through the 54 page document which Novell filed Thursday and will post some of the more interesting sections.

If you assume the mean growth rate of 15% and establish a mean PE equal to the growth rate(ie. 15) and assume that Novell will earn next year between $0.80 and $1.00 and finally add back in the book value (cash plus market value adjusted assets) of $6.00, you come up with a price range of between $18.00-$21.00.

Note also that the "Rights Agreement" is triggered by several events, one being any shareholder that accumulates 15% or more of the commmon stock. There was no new 13G filed (as of Friday night), so we have to assume that either one or more of the 5% holders OR one or more of the large mutual funds may have been approached to sell their shares to a suitor.

The filing on Thursday (November 21, 1996) actually amends an earlier version of the "Preferred Shares Rights Agreement" issued December 7, 1988 and NOW INCLUDES THE SERIES A PREFERRED. Wasn't this preferred series issued to Ashton & Bruce?

To summarize Doug, you are correct that the fair value for Novell according to Graham and other valuation models is around $21. However without an effective or efficient management team to properly utilize the company's assets to generate a market rate of return, it appears that a White Knight (the suitor) can do a better job. Accordingly, the shareholder should ultimately benefit from this as the share price should move towards this fair value number.

Let's hope our board uses the "Preferred Share Purchase Rights" plan to the benefit of ALL shareholders and can leverage its hand to the suitor to (1) obtain a fair offer for our stock and (2) better position the company's assets to grow in the future for the suitor and/or their shareholders (look Novell shareholders may eventually be shareholders in the acquiring company).

Finally, it is also a round about way to get new management which is first priority for all shareholders now.

EKS
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