* Calls offer "inadequate"
* Major shareholder backs decision
LOS ANGELES, March 20 Novell Inc NOVL.O
spurned a $2 billion takeover offer from investment fund
Elliott Associates on Saturday, calling the bid inadequate and
saying it undervalued the business software maker.
Novell said its board had instead initiated a review of
alternatives, including a share buyback, cash dividend, joint
ventures, recapitalization, alliances or an outright sale.
Elliott Associates announced its $5.75 a share offer on
March 2, sending Novell's stock soaring 28 percent as investors
hoped it would trigger a bidding war and put the world's No. 2
maker of the open source Linux operating system into play.
"It undervalues the company's franchise and growth
prospects," Novell said in a statement.
The Blue Harbour Group, which owns 4 percent of the
company, agreed with the board.
"We support the company's decision today to pursue a formal
review process with the assistance of its advisors," the
investment firm said in a separate statement.
Analysts say large software makers may consider bidding as
they could sell their business programs alongside Novell's
version of Linux, used widely by financial institutions and
Companies including HP (HPQ.N), SAP (SAPG.DE) and IBM
(IBM.N) could swoop in with a rival bid, analysts say.
Elliott, which already owns 8.5 percent of Novell, had
offered at the time to pay a 21 percent premium for a company
that has been hurt by competition and struggled to boost sales.
In 2009, Novell's revenue declined about 10 percent.
Shares in the company -- which has nearly $1 billion in
cash and saw its stock surge above $6 in the wake of the bid --
closed on Friday at $5.64.
Elliott, an investment firm with over $16 billion in assets
under management, has gone after undervalued companies before
and has targeted other technology firms, including Epicor and
Novell's key rivals include Microsoft (MSFT.O), Oracle Corp
ORCL.O and Red Hat Inc (RHT.N), while customers range from
Wal-Mart Stores Inc (WMT.N) and Wyndham Worldwide Corp (WYN.N)
to Casio Computer (6952.T).
JPMorgan is serving as Novell's financial adviser.
(Reporting by Edwin Chan; Editing by Peter Cooney)