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Noorda's Last Hurrah

Can the networking giant turn WordPerfect and Borland' s suite into a winner?

By Joseph C. Panettieri
Issue date: March 28, 1995

Talk about going out with a bang. Ray Noorda, only weeks away from stepping down as Novell Inc.'s president and CEO, has redrawn the map of the software industry.

Enticed by the burgeoning market for suites of desktop application software, Novell last week agreed to pay $1.35 billion in stock to acquire WordPerfect Corp. and $145 million to purchase Borland International Inc.'s Quattro Pro spreadsheet business. I ncluded in the Borland deal are the rights to sell one million copies of its Paradox database.

The merger has been approved by the boards of Novell and WordPerfect and is expected to gain regulatory approval by June. But a sharp drop in Novell' s stock following the deal had some analysts speculating that it could fall through if Novell's share price fell too low.

Once the deals are complete, Novell will become at least a $1.9 billion company, placing it among the elite software makers. Novell had revenue of $1.1 billion last year, privately held WordPerfect took in $700 million, and Quattro Pro sales were about $80 million. ''This creates a software giant,'' says Borland CEO Philippe Kahn.

Cash-strapped Borland appeared happy to unload Quattro Pro and regroup around its core tools business.

Code, Cultures, Customers
Not so happy are Microsoft Corp. and Lotus Development Corp., which dominate the market for software suites. Both have been quick to poke holes in the Novell deals. ''Mergers are tough to do well,'' asserts Robbie Bach, group product manager for Microsoft Office. ''There are a lot of factors-merging code, merging cultures, merging customer bases.'' Adds John Landry, chief technologist at Lotus, ''Novell has a lot of work to do. Its acquisition track record is not great.''

That's for sure. Novell has yet to benefit from a 1991 purchase of Digital Research Inc., a developer of a lesser-known version of DOS, and from a 1993 acquisition of Unix Systems Labs and AT&T's Unix trademark. The fruit of those acquisitions, Novell's DR-DOS and UnixWare operating systems, have had little market impact.

This time the results will be different, promises Noorda. For one, Novell and WordPerfect are Utah-based and will likely avoid the culture shock that can occur when large organizations combine. Also, WordPerfect CEO and president Ad Rietveld will stay on, even though WordPerfect will become a subsidiary of Novell. Rietveld will also join Novell's board and its office of the president, already occupied by Novell chief operating officer Mary Burnside and CFO Jim Tolonen.

Novell's buying binge completes an about-face for the networking giant. As Amy Wohl, a Bala Cynwyd, Pa.-based consultant, asks, ''What happened to Novell's criticism of Microsoft for controlling applications and operating systems?'' Indeed, Novell has often objected to the soup-to-nuts method that archrival Microsoft used to build its stellar software business. Novell, which controls the network operating system market with a 65% share, has made little effort to hide its suspicion that Microsoft's Windows contains undocumented ''hooks'' that allegedly let Microsoft desktop applications perform better with the popular graphical user interface than third-party applications can. Using this as its rallying cry, Novell has egged on a Justice Department probe of Microsoft's alleged antitrust activity.

'More Involved in Applications'
Ever since a merger attempt with Lotus fell apart in 1990, Novell has claimed it would resist entering the applications market. But Noorda, slated to resign his CEO and president titles by this June, has had a change of heart. Early on, ''we really had to focus on what Novell was-a networking company,'' he says. ''But if we're going to be a truly complete player, clearly we have to be more involved in the applications market. We're going to make them [Microsoft and Lotus] work a little harder. Now it's a three- or four-vendor race.''

Novell won't be subjected to an ''undocumented NetWare'' probe, says Rietveld, because ''we've learned [from the Microsoft investilso want to hold off on their groupware purchases since WordPerfect' s InForms software is sure to be pitted against Lotus' Notes. ''In two years, we'll be in the network component business, and suites will have disappeared,'' says Rietveld.

Who'll Run The Empire?
Before then, Novell will have to navigate a minefield of potential problems. The obvious question: Who's going to run its new software empire? Novell's board has been looking for a CEO and president to replace Noorda who, at 69, suffers from occasional memory lapses. He is expected to remain as chairman, but wants the president and CEO slots filled by June.

Robert Frankenberg, VP of Hewlett-Packard's personal systems organization, is considered the leading candidate. Sources say Frankenberg, who has headed the networking and PC hardware groups at HP, could join Novell within a month.

Next on Novell's agenda will be winning over Wall Street. The company's stock price dropped significantly the day after the WordPerfect merger announcement. One analyst says market watchers worry that the merger could be ''the anchor that sinks Novell. It's been active in acquisitions, but it's got a big problem tackling a new version of NetWare.''

Adds Price Waterhouse's Laube, ''A year from now, who knows w hat will happen with this merger? But everybody's smiling right now.''

Everyone, that is, except Microsoft and Lotus.

With additional reporting by Elliot Kass and John Soat