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Hedge fund offers $1.8 billion for Novell

Elliott Associates, which already owns 8.5 percent of Novell's shares, says the software company has underperformed under current ownership.

Elliott Associates has offered to acquire software maker Novell.

The acquisition offer, delivered in a letter to Novell's board of directors, is valued at $1.8 billion, or $5.75 per share. Elliott Associates already owns 8.5 percent of Novell's shares, which it began buying up in January.

According to The Wall Street Journal, Elliott Associates told Novell's board that the stock has "meaningfully underperformed" and called recent acquisitions and changes in strategies "unsuccessful." The hedge fund says its experience in restructuring and acquisitions will "deliver maximum value to shareholders."

Novell confirmed that its board had received the letter and "anticipates that its Board of Directors will review Elliott's proposal in consultation with its financial and legal advisors," the company said in a statement issued Tuesday evening.

Shares of its stock jumped 26 percent, to $6, in after-hours trading on the news.

Novell is certainly a long way from its heyday. At one time, its Netware operating system was widely used on corporate servers. It also had ambitions to rival Microsoft, acquiring the WordPerfect suite of desktop applications, a tough competitor to Microsoft's Office suite. But Novell, perhaps as much as any company, learned what it's like to compete with Microsoft and lose. When Windows NT hit the market in the 1990s, Novell began a slow decline. Several CEOs came and went, including Google CEO Eric Schmidt.

In fact, Schmidt saw early success at Novell's helm, even briefly moving the company's executive offices from Utah to San Jose, Calif. Schmidt pushed the company to release Netware 5.0 well ahead of Microsoft's Windows 2000. But once Windows 2000 debuted, Schmidt and the rest of Novell didn't have a good response, and the company's decline continued.

After Schmidt left, the company returned to its Utah roots and enthusiastically embraced open-source software. Again, it was outmaneuvered by other software companies, most notably Linux distributor Red Hat.

CNET's Jim Kerstetter contributed to this report.

This post was updated at 9:15 p.m. PT with Novell's statement.