Novell to buy SuSE for US$210 million in cash

In a strategic move to extend its grip in the open source community, Novell Inc. dispelled months of industry speculation on Tuesday after announcing a US$210 million dollar cash deal to acquire German-based SuSE Linux AG – a leading supplier of Linux software and services.

“Novell can now help customers deploy Linux strategically in the enterprise,” said Novell’s chairman and CEO Jack Messman. “Linux no longer needs to stay at the periphery, it can come into the core of the business – it can now move into the data centre.”

The merger provides Novell with a complete stack of Linux-based components from the server to the desktop, enabling it to offer a full range of Linux solutions.

“Novell will be the only US$1-billion company offering a full Linux stack from the server to the desktop and a worldwide ecosystem to support it,” Messman explained. The stack will include servers, the desktop with an office productivity suite, systems management tools, a standards-based development environment, security and collaboration solutions.

Being able to offer the full stack was a move Novell needed to make in order to keep the Provo, Utah-based company as a competitive vendor, said Dan Kusnetzky, vice-president of system software research at IDC in Framingham, Mass.

“They have – what is thought across the industry – to have excellent technology and excellent services, all focused on a platform that has been in decline for the past few years. It’s reached its maturity and it’s starting down the other side of the cycle,” Kusnetzky explained. “The only thing that has been a challenge for them is they didn’t have the complete stack of software that they could put out in a Novell box.”

Now, with a combination of Novell’s partner channels and other technological products and services, the relationship with one of the top two commercial Linux distributions in the world will take Novell out of the slowly declining mode and into the mode of an increasingly important vendor, Kusnetzky said.

Over the past year, Novell has been placing an increasing emphasis on Linux. In April, the company announced that it was planning to use Linux as a migration path for its NetWare network operating system. Then, several months later Novell acquired Ximian, a Boston-based provider of Linux desktop, management and groupware technologies.

“Despite actions by Novell, we were still missing a piece,” Messman said. He added that the company, until Tuesday’s acquisition of SuSE, was still missing the foundation – or the platform.

“Today, we’ve plugged that hole,” he said. “Already, SuSE is the second largest Linux company. Now we can soon become the number one Linux company. Together we are an effective competitor to that current number one.”

In that top rung currently sits Red Hat Inc. – the company that could be on the only potential loser in this deal, Kusnetzky explained.

“It ends up being a very good move for everyone expect Red Hat,” he said.

Recently, Red Hat has been trying to move its customers to a more rigid licensing model. The open source community has been increasingly unhappy with Red Hat’s move to a Microsoft Corp.-based licensing model and with the new Novell and SuSE combination, unless Red Hat changes the path its currently taking, customers will have another viable Linux option, Kusnetzky said.

Novell said it would continue to support services on Red Hat, but that SuSE would get its main focus.

Overall, the big winner is the open source community, Kusnetzky said.

“There is now a sense of stability for organizations on the edge of trying to decide if they would go ahead with open source or not,” he said. “Linux and all the related products and services would be one product line of a larger entity instead of being a standalone business that could only survive on revenue generated on open source software.”

Details of the acquisition still need to be fine-tuned, Novell’s Messman said. Over the next 60 days Novell will look at the structure of the new company and focus on integration of products. SuSE’s 399 employees will retain their jobs after the merger is complete, although overlap in administrative functions would be eliminated. Also, Messman said the headquarters for SuSE would stay in Germany.

The SuSE acquisition is still subject to regulatory approval and the winding up of shareholder agreements. Novell said it expects the transaction to close by the end of its first fiscal quarter, January 2004.

The Provo, Utah-based company also announced that IBM Corp. will make a US$50-million investment in Novell. The two companies are negotiating extensions to the current commercial agreements between IBM and SuSE Linux for the continued support of SuSE Linux on IBM’s eServer products and middleware products.

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