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Novell, under pressure, will buy back its stock

Software company's decision to repurchase $200 million worth of shares follows recent, vocal requests for financial change.

Novell announced a plan Thursday to repurchase as much as $200 million worth of its own stock over the next year, a move that dovetails with recent, loud requests for financial changes at the software company.

Earlier this month, Blum Capital Partners, which owns more than 5 percent of Novell's shares, broadcast its wish that the company buy back some of its own stock. That request came on the heels of a .

Stock buybacks deplete a company's cash, but retiring outstanding shares also increases the ownership stake of existing shareholders. Blum Capital suggested repurchasing $500 million worth of shares, a considerably more aggressive buyback than the $200 million Novell's board approved.

Blum and Maynard also suggested Novell sell off some businesses and focus more on Linux and other open-source software. In a statement announcing the share repurchase, Novell Chief Executive Jack Messman didn't offer details, but he did indicate that more changes are coming.

"Our stock buyback is just one of the elements of a plan aimed at enhancing shareholder value and securing Novell's future as an important provider of solutions to the IT market," Messman said in the statement. "The buyback demonstrates the board and management's confidence in our financial strength and strategic plan."

But not everyone is impressed. "A buyback is good on the face, but it's token" in this case, said Jefferies & Co. securities analyst Katherine Egbert, who doesn't own the stock or have banking business with Novell. "It reduces cash and doesn't really move the needle on earnings per share this year or next."

Novell holds second place in the Linux market to Red Hat, but by Maynard's estimate, has been losing market share. From 2002 to 2004, Novell's share of Linux license revenue dropped from 25 percent to 20 percent, while Red Hat's increased from 40 percent to 63 percent, he said.

Novell also sells server software, management software and its NetWare operating system, which when combined with Suse Linux Enterprise Server is sold as a product called Open Enterprise Server.