Hedge fund Elliot Associates has made a bid to acquire software vendor Novell. In a public letter to the company's board of directors, the hedge fund offered $5.75 per share (a 49 percent premium), placing Novell's value at $2 billion dollars. Elliot Associates is already one of the largest institutional shareholders of Novell, with roughly 8.5 percent of the company's stock.

Novell's NetWare platform was once a widely-used server operating system, but its popularity swiftly declined with the emergence of Linux. Novell responded to that trend by entering the Linux market itself, acquiring Ximian and SuSE in 2003. Novell has made significant inroads in the Linux space, but has had difficulty competing with Red Hat on the server side. Although Novell is still an active contributor to Linux desktop and server technologies, the company is gradually shifting its focus towards development tools—particularly the Mono framework, which has been modestly successful and is attracting a growing audience of commercial software developers due its suitability for mobile uses and embedding.

In the public letter to Novell's board of directors, Elliot Associates portfolio manager Jesse A. Cohn describes Novell's attempts at diversification as "unsuccessful" and contends that the company's stock has underperformed. Elliot Associates believes that it can turn Novell around by restructuring the company to wring more value out of its useful technologies. The letter conveys a sense of urgency and uses the word "expedite" twice. It's pretty clear that they want this deal and they want to get the ball rolling as soon as possible.

"We are available to sign an appropriate confidentiality agreement and commence our due diligence review immediately. Elliott is prepared to devote considerable resources to completing this transaction and we are confident that, with [Novell's] cooperation, we will be in a position to execute a definitive transaction agreement on an expedited basis," wrote Cohn in the open letter.

The fate of Novell has significance for the broader Linux and open source software communities because many other Linux distributions rely on Novell's technology and code contributions. For example, Novell's AppArmor framework, F-Spot photo manager, and custom build of OpenOffice.org (which has enhanced support for Linux) are shipped by default in Ubuntu and other distros. There is no way to know yet how Elliot Associates would manage these projects if the acquisition is successful.

In response to the proposal, Novell issued a public statement which indicated that the company's board of directors is preparing to evaluate the offer with the help of its legal and financial advisors. Novell hasn't provide any specific details yet that provide insight into whether it is willing to accept the offer.

Although Novell has good technology and smart people, it has been short on execution. The company's controversial agreement with Microsoft proved to be profitable in the short term, but created friction between Novell and the broader Linux community. Converging the highly disparate cultures and technologies of Ximian and SUSE has consistently posed challenges for Novell, but the combination could still potentially make the company a Linux powerhouse if it got the right kind of leadership. It's unclear, however, if that's what Elliot Associates has in mind.