| Novell gets $348 million from Microsoft |
Nov. 07, 2006
Novell has published additional details about its agreements with Microsoft concerning Windows and Linux interoperability and patents. It seems the company is receiving an up-front payment of $348 million from Microsoft, for SLES subscription "certificates" and for patent cross-licensing.
In Novell's Form 8-K submission to the SEC (Security and Exchanges Commission), Entry into a Material Definitive Agreement, the company states that "Under the Business Collaboration Agreement, which expires January 1, 2012, Novell and Microsoft will market a combined offering. The combined offering will consist of SUSE Linux Enterprise Server (SLES) and a subscription for SLES support along with Microsoft Windows Server, Microsoft Virtual Server and Microsoft Viridian that will be offered to customers desiring to deploy Linux and Windows in a virtualized setting."
Virtualization has become a hot topic in IT circles over the last few years. IDC predicts that the total market for virtual machine software will be $1.8 billion by 2009.
For this package, Microsoft will make an upfront payment to Novell of $240 million for SLES subscription "certificates" that Microsoft can use, resell, or distribute over the term of the agreement. These certificates, in turn, can be used to redeem single or multi-year subscriptions for SLES support from Novell.
In addition, Microsoft will spend $12 million annually for marketing Linux and Windows virtualization solutions. Microsoft has also agreed to spend $34 million over the term of the agreement for a Microsoft sales force devoted primarily to marketing the combined offering. Microsoft agreed that for three years it will not enter into an agreement with any other Linux distributor to encourage adoption of non-Novell Linux/Windows Server virtualization through a program substantially similar to the SLES subscription "certificate" distribution program.
"The financial commitments Microsoft is making as part of this agreement are significant," said Ron Hovsepian, Novell's president and CEO in a statement. "This will help drive Linux more rapidly into the enterprise and government arenas, broadly expanding opportunities for Linux and open source. This is good for Novell, but it's also good for the community because it will make Linux and open source much more prevalent and drive demand for Linux-based solutions."
As for the patent cooperation agreement, Microsoft will make an up-front net payment to Novell of $108 million, and Novell will make ongoing payments totaling at least $40 million over five years to Microsoft. The exact amount will be based on percentages of Novell's Open Platform Solutions and Open Enterprise Server revenues.
Thus, Microsoft will pay Novell at least $348 million up-front for the agreement.
David Kaefer, Microsoft's general manager of intellectual property and licensing, said that Microsoft is paying this because, "For us that is seed money for a much larger opportunity."
"If you look at virtualization as one example [it will be] a nearly $2 billion market by 2010. So we think that the only vendors that will do very well in virtualization will have dual platform or multi platform solutions that are tested, that are supported. So we actually think that Novell and Microsoft are taking a big strong lead and both of us can grow share in that important market," explained Kaefer.
Novell, it appears, may need those funds. This news comes just one day following rumors, still unconfirmed by Novell, that the Linux company had laid off some employees. In addition, Novell announced on Nov. 6, for the third time, that it was extending its deadline to get the holders of its Convertible Senior Debentures to not demand immediate payment of the total $600-million owed in 2024.
Wells Fargo Bank N.A. demanded the early payment in full when it claimed that Novell had defaulted on its payment agreement by not turning in its July 31 quarterly earnings report to the SEC in a timely fashion.
This, in turn, had been caused because Novell, like many other technology companies, has delayed its financial reports while it audits its past stock option practices.
Instead of fighting Wells Fargo's claim, Novell has been trying to get the actual debt holders to agree to Novell having until March 30, 2007 to become current in its SEC reporting obligations. However, as today's announcement shows, Novell and its solicitation agent, Citigroup Corporate and Investment Banking, have not been able to get enough of them to agree at this time.
Novell is offering to pay the debt holders an additional 7.33 percent per annum, payable semi-annually, in special interest on the debentures if they agree to the extension.
-- Steven J. Vaughan-Nichols. Additional reporting by John Pallatto.
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