Novell Acquisition Delayed by DOJ Patent Investigation

Novell's $2.2 billion acquisition by Attachmate, approved by shareholders of both companies last month, has run into some legal snags.

The deal hinges largely on the sale of 882 patents to a Microsoft-led consortium of vendors. As might be expected, due diligence by the U.S. Department of Justice and the Securities and Exchange Commission in examining each of these patents is taking longer than expected.

As a result, the closing of the transaction has been pushed out from March to at least mid-April. Investors and shareholders in both companies won't be pleased to hear this news.

According to a Form 8-K legal affidavit filed by Novell on March 4 in response to a second request for information from the DOJ, Novell and the Microsoft consortium "have agreed to provide the DOJ with additional time to review the patent sale and not to close the patent sale prior to April 12, 2011. The Company remains committed to working with the DOJ as it conducts its review of the patent sale."

Novell, which has been struggling in red ink for the better part of the past 10 years in the Linux and enterprise middleware market, needs this deal-with its infusion of badly needed capital-to be completed as soon as possible.

Stockholders of networking and middleware provider Novell voted at a special meeting Feb. 17 to accept the merger agreement made Nov. 21, 2010, with Attachmate Corp. and Longview Software Acquisition Corp.

Attachmate is spending $6.10 per share for Waltham, Mass.-based Novell.

Attachmate, a 30-year-old company with about 65,000 customers, is an IT host connectivity and systems/security management integrator that has offices on six continents and is headquartered in Seattle. It is owned by an investment group led by Francisco Partners, Golden Gate Capital and Thoma Bravo.

At the time of the acquisition announcement, Novell said it would sell some of its software patents to CPTN Holdings LLC, the consortium of technology companies organized by Microsoft, for $450 million in cash. This payment is to be contained in the amount to be paid by Attachmate, Novell said.

Novell did not specify which assets Microsoft will get, but senior IT analyst Katherine Egbert of Jefferies & Co. said in November that they are "most likely related to WordPerfect, which Novell acquired in the late 1990s, and through which Novell had sued Microsoft for anti-competitive behavior."

"Recall that Microsoft had settled outstanding litigation with Novell related to Unix in 2006, paying what amounted to [about] $350 million to Novell over several years," Egbert said.

The WordPerfect product line was sold twice, first to Novell in June 1994, which then sold it to Corel in January 1996. However, Novell kept the WordPerfect Office technology, incorporating it into its GroupWise messaging and collaboration product.