Novell to acquire SilverStream Software

Novell Inc. hopes to add a third leg to its Internet-products strategy, dubbed one Net, with an offer to buy SilverStream Software Inc., a specialist in Web services application development tools, for about US$212 million Monday. [Note to editors: New information appears in bold.]

The acquisition of SilverStream, based in Billerica, Massachusetts, will extend Novell’s offerings, enabling it to help enterprises deploy advanced Web applications, the company said in a statement.

A move into the Web services market will add a third leg to Novell’s one Net plans. The other two are Novell’s Cambridge Technology Partners consulting division, and the cross-platform infrastructure provided by its security and directory technologies, the company said.

“Today’s announcement moves us firmly into the category of major player in Web services,” Novell President and Chief Executive Officer (CEO) Jack Messman said during a conference call Monday.

SilverStream executives also saw the proposed deal as a major coup for their company.

“This takes SilverStream to a new level we would not be able to reach on our own,” said SilverStream President and Chief Executive Officer David Litwack.

Both boards of directors have unanimously approved the deal, and SilverStream shareholders that hold 20.33 percent of the shares have agreed to tender their shares, Novell said. The deal requires the approval of the holders of 90 percent of the shares, and still has to clear the usual regulatory approvals, it said. If shareholders support it, the deal could close in July.

Novell plans to rebrand SilverStream’s eXtend software line as its own, and Litwack will become a senior vice-president of Novell if the deal closes.

SilverStream’s technology, particularly its Web services creation and deployment tool eXtend Workbench, gives Novell the kind of application development tools that will help drive the company’s Web services strategy, according to analysts.

“It’s a powerful set of development tools that tie together Web services and existing systems, giving companies a great return on their assets investments,” said James Governor, industry analyst at Illuminata Inc. in London.

Governor praised eXtend Workbench’s ability to wrap AS/400 and mainframe systems for use with Java and Web services, as well as its XML transformation functionality.

“Novell doesn’t want to get into the business of selling a ‘rip and replace’ solution, given its huge installed base,” said Governor. “SilverStream’s products allow them to integrate.”

During the call, the company emphasized that Web services is a nascent market, in which open standards and integration are key. One big advantage for Novell under the deal is that the eXtend technology is built on the J2EE standard (Java 2 Enterprise Edition), which allows companies to build applications that run on any platform, company executives said.

The $212 million price tag is based on a cash offer of $9 per SilverStream share, with approximately 23.6 million shares expected to be outstanding if the deal closes in July as planned. However, the Provo, Utah, company will only have to lay out around $112 million in cash, as SilverStream is sitting on a $100 million pile of cash.

The deal offers a 75 percent premium on Friday’s closing price for SilverStream’s stock, according to Messman. The Novell head added that the company figured that the purchase price would be roughly how much it would cost Novell to develop a product line like eXtend internally. However, given that it would take three to four years to develop, and more time to grow a customer base, the company feared that it would enter the market too late. Because of this, Novell saw the SilverStream purchase as an advantageous move in its Web service strategy, Messman.

Messman said he doesn’t expect any significant layoffs if the deal goes through.

(InfoWorld’s Carolyn April contributed to this report.)

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