Update: Novell to acquire SuSE Linux in cash deal

In a move that has been rumored for months, Novell Inc. announced on Tuesday that is has entered into an agreement to acquire SuSE Linux, a leading supplier of the open source Linux operating system to enterprise customers.

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Novell has agreed to pay $210 million in cash for SuSE, which is located in Nuremberg, Germany, Novell said in a statement.

The move is subject to regulatory approval and the winding up of shareholder agreements, according to the statement.

This move follows Novell's August purchase of Ximian Inc., a provider of Linux server and desktop software.

Novell also announced that IBM Corp. plans to make a $50 million investment in Novell convertible preferred stock. In addition, both companies are negotiating extensions to the current commercial agreements between IBM and SuSE for the continued support of SuSE Linux on IBM's eServer products and middleware products.

Last week in an interview, Richard Seibt, chief executive officer of SuSE, refused to confirm rumors of a possible takeover by Novell, saying only that "there are lots of rumors out there, and there will be many more. We're doing well, and that attracts attention."

An analyst said that the pact benefits both parties.

"It is very good for Novell because they can center their efforts on a lively growing platform instead of focusing on a platform that is excellent but in decline," said Dan Kusnetzky, an analyst with IDC. "From SuSE's position, this gives them Novell's channel, partnerships and Novell's funding to help them to become a worldwide player."

Earlier this year, Novell purchased Silverstream and Ximian with the intention of moving all the acquired expertise onto the Linux platform. The missing piece, however, was that Novell, previously an operating systems company, didn't have an operating system to sell with Linux, rather they just had layers of software and services.

The third party to consider here is Red Hat. The company announced on Monday that it is discontinuing support of an earlier free Linux version in hopes of getting users to migrate to its enterprise-class software.

Red Hat also has been doing its best to enforce a license per machine and a service contract per machine business model, which has not been broadly accepted. The open source community, in fact, is grumbling louder and louder about that, Kusnetzky said.

This deal gives Novell and SuSE a chance to go to those users who are feeling disaffected because of Red Hat's moves and offer a Linux stack of software without the users' having to encumber themselves with Red Hat's licensing.

"So the Linux OS market now has a more legitimate Pespi to Red Hat's Coke. Now the combination has the strength and experience and history and installed presence in a significant number of the major companies, and now they have an opportunity to go after Red Hat's installed base, which is not happy with Red Hat's moves towards the enterprise licensing model," Kusnetzky said.

John Enck, a server strategies analyst at Gartner said that the move helps Novell stack up against Microsoft as well.

"Microsoft's major concern these days is Linux and so the combined Novell-SuSE-Ximian really does create a more competitive stack than Novell has. Novell can go head-to-head at the OS level and say 'OK you have Exchange, we have Groupwise, you got file and print and so do we,'" Enck said.