Mandrakesoft Buys Conectiva for Global Growth

While the French Linux provider presents its purchase of the Brazilian company as a triumphant expansion, some observers call it a desperation move.

Linux provider Mandrakesoft today announced its acquisition of Brazils Conectiva for $2.3 million in stock in an effort to expand its global market and capabilities. The combined company will offer both desktop and server products based on Linux.

"Mandrakesoft and Conectiva are joining forces to create a much stronger and better company," François Bancilhon, CEO of Paris-based Mandrakesoft, said in a conference call about the acquisition today. "Well have a strong worldwide presence that well continue to extend."

Mandrakesoft SA was looking for ways to grow its market share, and believes Conectiva SA provides new commercial opportunities in Latin America, where it had no presence prior to the acquisition.

"We are excited for the potential for growth, and are proud to be a part of a leading Linux company," Jaques Rosenzvaig, CEO of Conectiva, said during the call. "The strength of the two companies creates a new opportunity for customers. Consumers will benefit from the combined strength of our engineers and products."

Though the two CEOs outlook was positive in the conference call, not all observers believe that the acquisition is a particularly strong move for the companies.

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Dan Kusnetzky, vice president of International Data Corporations System Software research group, said consensus at the Framingham, Mass. firm is that the deal isnt a particularly significant development in the Linux market, but rather a last-ditch effort by the companies to stave off failure.

According to Kusnetzky, both companies have struggled financially—though both posted small profits recently—and will continue to struggle in competing with Linux market leaders Red Hat Inc. and Novell Inc.s SuSE Linux, which have all of the capabilities and reach of Mandrakesoft and Conectiva. The combined company doesnt gain a significant advantage in either the European or Latin American market.

Click here to read more about Mandrakesofts financial status.

"I look at it and say its a move by two companies trying to find a way to continue doing business, but Im not sure theres a long-term hope or prospect for them," Kusnetzky said.

Bancilhon, however, sees the new company as a major competitor in the market, now with a strong presence in South America and expanding opportunities in North America.

"At this point, there are three global players, and we are one of those," he said.

Click here to read more about Conectivas participation in LCC, the new Linux consortium.

Conectivas revenues in its latest year were $2.2 million, coming mainly from Brazil, while Mandrakesoft brought in $6.7 million, with a user base of roughly four million, principally in France and North America.

Mandrakesoft will keep most of Conectivas staff intact for a total of 130 employees. Bancilhon believes the combined company will bring in quarterly revenues of about $2.5 million initially. A combined Linux offering will be available later this year.

Kusnetzky said that as the Linux market continues to mature, with few major players and more than a hundred specialty Linux shops worldwide, it "seems to be more and more like a typical operating system market."

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