Novell buys SuSE Linux

Longtime Microsoft foe Novell has signed an agreement to acquire SuSE Linux for $210m in cash, while IBM, the most powerful backer of the open-source operating system, will take a $50m investment in Novell, the companies said on Tuesday.

The move could boost the fortunes of SuSE, the No. 2 seller of Linux, increase the competitive pressure on No. 1 Red Hat, and provides a new direction for Novell's ongoing rivalry with Microsoft.

The move is the second Linux acquisition for the company, which bought desktop Linux software specialist Ximian in August. Though Ximian gave Novell software for using Linux on desktop computers, SuSE is strongest with software for Linux on servers, the networked machines that handle chores such as hosting Web sites and routing email.

The acquisition is expected to close by the end of Novell's first fiscal quarter in January, at which point the IBM investment will become effective, Novell said. IBM plans to buy $50m of Novell preferred stock.

In addition, IBM and Novell are negotiating an extension to SuSE's agreement to support all four of IBM's server lines and are planning joint marketing and support relationship, the companies said.

In one fell swoop, the move dramatically alters the Linux landscape:

• It joins SuSE's partnerships and considerable influence in the Linux market with Novell's sales network, customer base and cash. On 31 July, Novell had $739m in cash and marketable securities.

• It gives Novell a second chance to take on Microsoft, applying the lessons it learned a decade ago when its NetWare operating system for servers lost out to Windows -- and this time, Novell will also be able to sell an operating system for desktop computers. Microsoft already has Linux in its crosshairs.

• It could reshape the dispute between Unix owner SCO Group and its two legal adversaries, IBM and leading Linux seller Red Hat. Novell -- a company that has retained significant rights from its former ownership of Unix -- now has a strong vested interest in Linux. SuSE, meanwhile, believes its former alliance with SCO shields it, an assertion SCO denies.

• It puts competitive pressure on Red Hat by giving Germany-based SuSE better access to buyers in the United States, the world's biggest technology market and Red Hat's stronghold.

• It could accelerate changes in Novell and SuSE product plans, including SuSE's transformation from a seller of operating systems to a seller of higher-level server software and Novell's move from NetWare to Linux as a foundation for its software.

Novell may end up with SuSE, but it wasn't the only potential candidate. RedMonk's Governor said he learned that SuSE had proposed that Sun Microsystems buy the company, but Sun rejected the offer. Sun was not immediately available for comment.

Although Novell and SuSE plan some changes, much will remain constant, Novell said.

Novell vice chairman Chris Stone and chief technology officer Alan Nugent will oversee the Linux work, spokesman Bruce Lowry said.

The role of SuSE chief executive Richard Seibt isn't yet clear, but Lowry said Seibt has indicated he plans to stay with Novell. "We expect many SuSE executives will remain and continue their work with SuSE Linux as a part of the Novell management team," Lowry said.

It's too early to say whether SuSE staff will lose jobs, Lowry said. Staff from the two companies don't overlap much beyond some areas in administration and finance, he said.

SuSE's development work will stay in Germany, though Novell plans to "cross-pollinate" SuSE and Novell engineering, Lowry said. Novell will maintain the SuSE brand.

Disdain for SCO's lawsuit
SCO and Novell have been tangling over Linux since SCO launched a legal attack that accused IBM of moving Unix technology into Linux against the terms of its contract with SCO. Novell's public involvement began in May when the company asserted that it never sold Unix copyrights to SCO then backed off when SCO unearthed a contract amendment that showed otherwise.

The SuSE acquisition plan indicates that Novell and IBM are unfazed by SCO's position, said Mark Radcliffe, an intellectual-property attorney for Gray Cary who has monitored the SCO legal machinations.

"It shows a deep scepticism if not outright disdain for the SCO claims," Radcliffe said. "Or else they wouldn't be spending this amount of money."

In particular, the acquisition plan could indicate that IBM has faith in a provision that Radcliffe termed a "silver bullet" in the 1995 Asset Purchase Agreement under which Novell sold Unix to SCO Group's predecessor. Under that provision, Novell is permitted to waive potential violations of the Unix licence agreements that were in effect when it sold Unix, and Novell invoked the right in the IBM case against SCO.

"Maybe (IBM) believes its silver bullet is actually a platinum bullet. If you spend a lot of money, you obviously have a lot of confidence in that part of the situation," Radcliffe said.

SCO sees things from the opposite side. Tuesday's deal means IBM and Novell "are willing to take on a great deal of risk," spokesman Blake Stowell said. "The intellectual-property issues in Linux are controversial and unsettled, and it appears it may be that way for a very long time."

There are other factors involved in the IBM-Novell-SuSE relationship, however.

For example, SuSE has long supported Linux on Big Blue's in-house server designs, Governor said. "At the moment, IBM needs SuSE."

IBM's iSeries midrange servers and zSeries mainframes are updated every six months, and the company needs to ensure that Linux keeps pace. Big Blue "faced a stark choice -- put some money in, or think about delivering its own distribution" of Linux, Governor said.

In addition, IBM, Novell and SuSE are all happy to compete against Microsoft. "What's good for Linux is bad for Microsoft," Haff said, and Tuesday's deal has the potential to "further erect fences around Windows."

Governor believes Novell's intent is to compete with Microsoft on the company's stronghold.

"IBM has been reluctant to step up to the plate when it came to customer calls for a client-side open-source strategy," he said. "It looks like Novell is trying to reinvent itself with a strategy in exactly that direction."