Tag: unsolicited deals

A nope from Novell

Brenon Daly

Contact: Brenon Daly

The only surprise about Novell turning down the unsolicited $2bn offer from Elliott Associates was the timing. In an unorthodox move, the software vendor said ‘thanks, but no thanks’ to the hedge fund on Saturday morning, when most thoughts were turning to a full day of March Madness. (And what a maddening day it turned out to be, at least for people who filled out their brackets with top seeds: On Saturday, teams seeded No. 1, No. 2 and No. 3 all got sent packing.)

In dismissing the bid, Novell’s board of directors said the offer from Elliott of $5.75 for each share ‘undervalues’ the company and its growth prospects. As an aside, we’re not exactly sure what growth Novell is referring to. The vendor has come up short of Wall Street revenue estimates for both quarters of its current fiscal year so far, and sales this fiscal year, which ends in October, will almost certainly come in below the $862m it recorded last fiscal year. Revenue in the following fiscal year is also likely to come in below last fiscal year, at least according to Wall Street projections.

Even without much top-line excitement, Novell does nonetheless have some valuable assets: A bankable $600m maintenance revenue stream, a decent Linux business and probably the fourth-largest portfolio of identity and access management technology. Of course, its most attractive property is its treasury, which is stuffed with a cool $1bn in cash and short-term investments.

And finally, we would note that Novell does have an experienced adviser in JP Morgan Securities as it explores options to enhance shareholder value. In just the past 10 months, JP Morgan has worked with two other long-in-the-tooth software companies that have been targeted in publicly contested M&A processes. Both Borland Software and MSC Software ended up getting sold, with Borland going for a whopping 50% higher than the initial bid.

National (in)security

Brenon Daly

With Sourcefire likely to get gobbled up shortly by a hungry Barracuda Networks, we couldn’t help but flashback to the earlier attempt by Check Point Software Technologies to acquire the Snort vendor. (For those of you keeping score at home: Yes, Check Point’s offer more than two years ago valued Sourcefire higher than Barracuda’s current bid.) We mention the stillborn deal because there are echoes of Check Point-Sourcefire in a current proposed pairing.

Recall that the deal got snagged because of US regulators’ concern about ‘sensitive’ technology (Sourcefire’s Snort intrusion prevention technology) falling into the hands of foreign companies (Check Point’s Israeli ownership). That concern – an overblown bit of nutty protectionism that doesn’t exist anywhere outside of Washington DC – is back at issue in the proposed pairing of Oregon-based identification card maker Digimarc and a French defense firm called Safran.

Earlier this week, Safran offered $300m in cash for Digimarc, hoping to trump a three-month-old agreement Digimarc had with US company L-1 Identity Solutions. (We looked at the deal, which represented a five-bagger for Digimarc, back in March.) L-1’s offer, which is half in stock and half in cash, is roughly worth $260m.

On word that Safran is now in the running, L-1 played the national security card, warning about the sinister threat posed by a French firm owning Digimarc’s ID card business. Safran’s bid would face scrutiny from the same regulatory agency that spiked Check Point’s planned purchase of Sourcefire, the Committee on Foreign Investment in the US. We think such regulatory meddling is misguided. But we certainly understand L-1’s move to wrap themselves in the flag to secure this deal. It’s a lot cheaper for them to hire a few well-connected lobbyists than actually raise their bid.

A chippy deal

Brenon Daly

After more than two months of discussions, Cadence Design Systems put a bear hug on Mentor Graphics on Tuesday, June 17, offering roughly $1.6bn in cash for the smaller chip-design vendor. Under terms of the unsolicited offer, Cadence would pay $16 for each of the roughly 91 million Cadence shares. Cadence said it would cover roughly one-third of the purchase with its available cash, while borrowing an additional $1.1bn. Deutsche Bank Securities is advising Cadence.

The deal – if it gets approved by Mentor shareholders and survives regulatory review – would combine two of the three largest electronic design automation (EDA) companies. Cadence and rival Synopsys are roughly the same size at about $1.6bn in sales last year, which is twice as big as Mentor. (Various pairings of these three players have been discussed over the years.) However, Mentor said later Tuesday that it was not interested in a pairing with Cadence.

Cadence’s approach, which we would characterize as ‘opportunistic consolidation,’ continues a recent trend toward unsolicited offers for underperforming rivals made in a very public way. (Although Mentor has recently trimmed its rather bloated cost structure, the company’s operating margins are less than half the level at Cadence.) The outcome of these ‘bear hugs’ has spanned the possibilities: Iomega recently accepted a raised offer from EMC; Microsoft walked away from its unsolicited bid for Yahoo; and Electronic Arts took its bid for Take-Two Interactive hostile.

EDA deal flow, by year

Year Deal volume Deal value
2005 5 $298m
2006 6 $888m
2007 13 $225m
YTD 2008* 11 $2.7bn

*includes announced Cadence-Mentor transaction. Source: The 451 M&A KnowledgeBase