Elliott's rejected bid put Novell on the market; Attachmate paid $2.2B

Before 2010, Novell was a tombstone of 1990s networking. Its NetWare software had owned the office LAN until the internet era, and the company had spent the 2000s rotating through assets — GroupWise collaboration, ZENworks management tools, and SUSE Linux, whose five-year deal with Microsoft let the arch-rival sell Novell's operating system. Analysts said the classic problem of such companies: the sum of the parts kept looking bigger than the whole.

On March 2, 2010, Elliott Associates announced an unsolicited, conditional proposal to acquire Novell for $5.75 per share in cash. Two weeks later the board answered in a press release: the proposal was 'inadequate' and 'undervalues the Company's franchise and growth prospects.' It then announced what mattered more: a 'thorough review of various alternatives to enhance stockholder value,' with J.P. Morgan as financial adviser. The bid was rejected, but a sale process had been opened.

The review delivered what the bid could not. On November 22, 2010, Attachmate — a terminal-emulation vendor owned by an investment group — agreed to buy Novell for $2.2 billion. SUSE was kept as a stand-alone unit, and Attachmate folded Novell's management and security software into its own NetIQ line. The company the activist could not buy for $5.75 a share was sold for $2.2B within eight months of the rejection.

Within eight months the sale review delivered: Novell was sold to Attachmate for $2.2B, after the board had rejected Elliott's $5.75-a-share offer as inadequate

Elliott's bid, even rejected, set a public floor: once shareholders knew a credible buyer existed at $5.75 a share, the board had to show it could extract more, or face an angry annual meeting.

Formalizing the 'review of alternatives' flipped the board's incentive: with advisers on the clock, the easy way to justify the rejection was finding a higher bid, not defending independence.

The result proved the activist's premise: the parts (SUSE, NetIQ, management tools) were worth more than the whole at its market price, and a private-equity-style owner could unlock the difference.

A rejected takeover bid can still be the turning point: it prices the company, forces the board to justify that price, and starts the sale process that can beat the original offer

Novell merged into Attachmate in 2011, and its lines — Novell, SUSE, NetIQ and Attachmate — were run as four separate product portfolios under one roof. In September 2014, Attachmate's parent agreed to merge with Britain's Micro Focus for about $1.2 billion, creating a combined enterprise-software company with $1.4 billion of revenue and more than 4,500 employees. Elliott's bid had failed, but the outcome it pushed for had happened: the market price of Novell's parts was realized through a sale instead of slow erosion.