Note: The Skinny blog is written by Rick Smith, editor and co-founder of Local Tech Wire and business editor of WRAL.com.
RALEIGH, N.C. – Red Hat (NYSE: RHT) shares hit a 52-week high of $39.17 in afterhours trading Wednesday night after news broke that Novell may be selling its SuSE Linux business. Is Red Hat going to buy one of its biggest competitors in the Linux open source business?
After so many rumors that Red Hat itself is a takeover target in these frenzied days of high-tech M&A, now the Street talk is the Hatters may be a buyer.
But also think about this: is Red Hat stock moving up since a buyer of SuSE would set a target price for a Red Hat buyer? Hatters’ stock sells at five times Novell’s value already.
Some analysts think Red Hat shouldn’t be written off as a potential suitor for SuSE if in fact it is for sale.
“While current expectations favor VMware, we shouldn’t rule the others out,” wrote Katherine Egbert at in a research note sent late Wednesday evening.
The New York Post first reported Wednesday that Novell (Nasdaq: NOVL) had decided to sell itself off in two parts – the SuSE Linux going to one buyer and the remainder to a private equity firm. Novell rejected a buyout bid from Elliott Associates in March.
The Wall Street Journal points to Red Hat as well as IBM and Oracle as potential buyers, but as Egbert noted the betting seems to be favoring VMware at this point.
“Several analysts said the most likely purchaser of SUSE Linux is virtualization and cloud infrastructure company VMware, noting that the company is already partnered with Novell in this area,” Dow Jones reported. “They also said that purchasing the SUSE Linux could be a good strategic move for VMware.”
Red Hat is already growing quickly in the virtualization and cloud computing space, the latest evidence being a deal announced with Qualcomm, the top mobile chip producer, on Wednesday.
However, bringing SuSE customers and capabilities to the Red Hat’s “software stack” would run contrary to Red Hat’s history, Egbert noted.
“We think it’s unlikely that Red Hat would acquire SuSE, since there is significant technology overlap and Red Hat would have to bear the expense of supporting SuSE for 5-7 years post acquisition,” she wrote. “We could see them purchase SuSE to keep it away from others, but to our knowledge they’ve never pursued that type of strategy.”
If Red Hat isn’t the buyer and IBM is, Egbert said the Hatters had best be wary.
“Surprisingly, IBM has not been mentioned in the press as a candidate to purchase SuSE,” Egbert said. “There’s history IBM of supporting SuSE, dating to the time of Novell’s purchase of the asset in 2003.
“But IBM has also been the key OEM and development partner of Red Hat for many years,” she added. “If Big Blue was to purchase SuSE, we foresee substantial headline risk for Red Hat in the near term and an overhang of uncertainty that could last for years, although the direct financial impact would probably total <$60mm annually.
“The magnitude of the disruption to the IBM-Red Hat relationship would depend on the scope of IBM’s plans for SuSE.”
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