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February 20, 1997
Novell Holders Launch Novel Protest on the `Net
Lisa R. Goldbaum
[Image]Investors have flocked to the Internet's message boards
and chat areas to share their ideas and vent their spleen
about stocks they own. But in recent weeks, some investors
have taken this one step further by using the 'Net to try
ousting a poorly performing company's management.
Novell shareholder Joe Antol of New Jersey, frustrated by
what he perceives as a lack of initiative from the board and
top management of the once-proud networking-software company,
has launched what may be the first Web-based proxy fight.
Antol has used his personal Web page to help individual
Novell shareholders send proxy statements to the California
Public Employees Retirement System's (CalPERS) and the State
of Wisconsin Investment Board (SWIB), both big institutional
holders of Novell stock.
The proxies would give CalPERS and SWIB the power to vote on
behalf of these individual investors either to oust the
current board of directors or take some other action to
implement change at the company. CalPERS, a leading
shareholder-rights advocate, has helped effect management
changes at some of the nation's biggest companies, including
IBM and General Motors.
Antol started his movement after seeing Novell on CalPERS'
annual top-ten list of underperforming stocks. "It was the
last straw for me," he said. Having bought the stock late in
1995 at about 18, he has since seen its price fall to the
current level of around 12 1/2-at one point it sank as low as
8 3/4--while other major technology stocks like Microsoft have
virtually doubled.
Proxy solicitations certainly aren't new, but launching them
over the Internet is. They're also a lot cheaper than hiring
a big proxy-solicitation firm to gather dissenting
votes-something way beyond the means of individual investors.
Even CalPERS spokesman Brad Pacheco was surprised at the
level of organization shown by these 'Net-savvy Novell
shareholders.
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To Antol, however, it was only natural. He has set up his own
Web page (http://www.monmouth.com/~jantol), which lets Novell
shareholders merely type in their names and click the "send"
button to e-mail their proxies to CalPERS and SWIB. Investors
seem to be heeding the call; Antol told Barron's Online that
the movement has already gathered about half a million
shares-admittedly a fraction of Novell's 344 million
outstanding shares, but a good start, he insists.
What's gotten Antol and his band of not-so-merry Novell
shareholders so riled up? Mainly, they fear that on its
current course, the company could become a high-tech
dinosaur. Novell, which develops software for computer
networks, still has a dominant position in that market. But
Microsoft, whose operating system commands the desktop, has
made a big push to grab share in the server and workstation
market, using its fast-growing Windows NT operating system as
a platform. Microsoft's determination and marketing muscle
make it a formidable foe for anyone, particularly a company
that seems as adrift as Novell does.
Novell seems to have done nothing right in the last three
years. Founder Raymond Noorda's valedictory acquisition of
WordPerfect in 1994--an attempt to thwart Microsoft--was a
disaster, as the program lost most of its market share by the
end of 1995. It was sold to Corel at a huge loss last year as
part of a promised turnaround by then-chairman, president and
CEO Robert Frankenberg. Frankenberg, an alumnus of Hewlett
Packard, tried to refocus Novell on its core networking
business, but he was gone by August 1996. His replacement was
marketing executive Joseph Marengi, who has been serving as
interim CEO while Novell looks for a permanent replacement.
Antol and the other investors are "trying to light a fire
under" management in an effort to get the board to hire a
"showbiz" CEO on the order of IBM's Louis Gerstner. He would
also like to see the company place a greater emphasis on
marketing.
But their real agenda may be to force the sale of the
company--a prospect Novell appears to be resisting. At a
recent investor conference, Marengi said, "Everything we're
doing in this company is geared to be stand-alone."
Nevertheless, Antol and others are proposing prospective
partners; he thinks Oracle might be a good match, since
acquiring Novell would allow it to broaden its market in the
network-software business outside its existing database
products.
But Novell has been the subject of takeover speculation for
years: in 1995 IBM was alleged to be interested, though
nothing ever came of that and no real suitors have emerged.
As an investor with the user name AlanI95975 said in one
posted message, "These rumors have persisted for so long, it
seems foolish to even factor them into decisions about the
stock."
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By some measures, though, Novell's stock does look
attractive. It trades at 15.4 times First Call's consensus
Wall Street estimate of 81 cents a share for the fiscal year
ending October 31 and at nearly 13 times the October 1998 EPS
estimate of 97 cents. (The company will report its fiscal
first quarter earnings next week, and the Street is looking
for 18 cents a share.) Meanwhile, analysts expect the company
to grow earnings at a 20% annual clip into 1998 and over the
next five years. That makes Novell one of the few technology
companies trading at a discount to its expected growth rate.
But with Microsoft knocking at Novell's door, not too many
investors seem ready to bet on that growth.
How effective will Antol's 'Net-based proxy crusade be in
influencing the company? Novell's head of investor relations,
Peter Troop, said he wasn't even aware of it, though he did
offer the standard company line, "Rebuilding shareholder
value is our overwhelming priority." And even CalPERS'
Pacheco said he realizes the company can't do anything
dramatic until it chooses a new CEO, which Marengi has said
will take another 30 to 60 days.
But Antol remains hopeful, if not a bit worn out. "I just
want to get out of this and still make some money," he
explained. He certainly has had to go to great lengths to
achieve that apparently simple goal.
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