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Novell adds $600 million to war chest

Linux seller could use new funds from bond offering for more acquisitions.

Novell, the second-ranked seller of the Linux operating system, raised $600 million in a bond offering that closed Friday.

Novell will use about $475 million of the funds for "general corporate purposes, including potential future acquisitions," the company said in a statement. The move comes about six months after rival Linux seller Red Hat raised $600 million of its own.

Acquisitions have been essential to Waltham, Mass.-based Novell's transformation into a company with Linux at its core. It bought Ximian in 2003 and SuSE Linux in 2004.

About $125 million of the money Novell raised will be used to buy back stock that outside investors--who also buy the bonds--are expected to sell short, the software maker said. Investors sell stock short when they borrow shares and sell them, then replace those shares with ones bought once the price has fallen. They make a profit on the price difference. Novell expects more short positions, company spokesman Hal Thayer said.

"Recognizing that there were going to be shorts, we used $125 million to soften the effects of the shorts," Thayer said. "We sized our buyback pretty close to what we thought would be shorted, so the effect of the shorts would be mitigated."