Novell Developers Have Second Thoughts On Microsoft Deal

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Stocks:  (NOVL)(MSFT)(RHAT)

Some of the key developers at Novell are going public with complaints about the company’s deal with Microsoft. The arrangement calls for co-marketing Windows with the Suse version of the Linux open source OS that Novell offers. Apparently, some of the covenants in the agreement do not give Linux developers enough protection from potential intellectual property claims from Microsoft.

The companies appear to be addressing the rift in their drafting of the final agreement.

But, the two companies may have trouble getting the ship back in the bottle. There is no guarantee that the entire deal is not in trouble.

Open source developers are already challenging the legal terms of the Novell/Microsoft deal. There is a concerns, among others, that the partnership will drive customers away from the more popular version of the Linux OS marketed by Redhat. Redhat has not signed a deal with Microsoft that would prevent it from facing patent litigation by the world’s largest software company.

In all of this, the stocks of Redhat and Novell will be interesting to watch. Redhat’s stock, which traded at $26 in late September was hammered down to $14 when the Microsoft deal with Novell was announced. It has recovered some, to $17. But, a collapse of the Novell arrangement might help it even more.

Novell, on the other hand, ran from under $6 to $6.80 when the deal was announced. It currently trades at about $6.20. Significant changes to the deal or a backing away by MSFT would not be good for Novell.

Not at all.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own shares in companies that he writes about.