Novell acquisition price could reach $1.4B

With as many as 20 bidders are interested in buying software company Novell Inc., the transaction could reach a purchase price multiple of up to 9x Novell’s expected 2010 EBITDA of $155 million, or roughly $1.4 billion, according to a report by Reuters.

Novell put itself up for sale and was accepting first-round bids in mid-May. It’s expected that, should a private equity bidder win the company, Novell would eventually be broken up into pieces and sold to such strategic buyers as Hewlett-Packard, Microsoft and Oracle, Reuters reported.

Most or all of the bidders expected to make serious plays for Novell are private equity firms, according to the Wall Street Journal, which broke the news of the process on May 19, citing people familiar with the matter. It is unknown who the bidders are, but firms that have participated, or expressed interest, in large technology deals in the past include Bain Capital, The Blackstone Group, Hellman & Friedman, Kohlberg Kravis Roberts & Co., Silver Lake and TPG.

Waltham, Mass.-based Novell is considered the No. 2 developer worldwide of the open source Linux operating system.

A spokesman for the company did not immediately return a call seeking comment. In March, Novell rejected a $2 billion takeover offer from hedge fund and shareholder Elliott Associates, calling its offer of $5.75 a share inadequate.

Novell shares closed at $6.03, up 3.6%, on the day news broke that up to a score of interested bidders was circling the company. At press time, however, shares had worked their way back down to $5.81. Initial offers for Novell were expected to top the Elliott Associates bid, the Wall Street Journal reported, adding that a private buyer could acquire Novell for about $500 million in cash and take on debt to cover the rest of the cost.

Reuters reported that the debt multiple for a Novell leveraged buyout could reach 5.75x the company’s expected 2010 EBITDA.

On May 27, the company posted a second-quarter profit in line with Wall Street expectations, and forecast current quarter revenue that may miss analysts’ estimates. Novell said net income for its second fiscal quarter ended April 30 was $19.9 million, or 6 cents a share, compared with $15.6 million, or 5 cents a share, a year ago. Revenue fell to $204 million from $216 million, but nearly met expectations of $204.9 million, according to data from Thomson Reuters (publisher of PE Week).

For its third fiscal quarter, the company expects revenue between $205 million and $210 million and said its pro forma operating margin will be similar to second-quarter levels. —Ari NathansonReuters contributed to this report.