Turbolinux plans to acquire services company Linuxcare

The two companies have started discussions to band together, representatives for each company confirmed Friday. "We have services, and they have products," a Linuxcare representative said.

The details haven't been settled yet, the representative said, and a final agreement hasn't been signed.

Current plans call for Turbolinux Chief Executive Paul Thomas to lead the combined company, which would keep all the Turbolinux board members and acquire some from Linuxcare, a Turbolinux executive said. The deal is expected to be a stock-for-stock transaction.

The merger would be a dramatic change of direction for both companies. Turbolinux has focused on selling Linux products that package the open-source operating system with higher-level software such as databases, but it has avoided the approach of its major competitor, Red Hat, which sells services.

Linuxcare, by contrast, has focused on providing services and technical support for all versions of Linux, including ones from Turbolinux and its competitors, Red Hat, SuSE and Caldera Systems.

The Turbolinux executive said the combined company will continue Linuxcare's support for multiple versions of Linux. "We'd love to have them continue as the Switzerland of the Linux market," he said. Turbolinux customers rarely use just one company's version of Linux, the executive said.

Turbolinux and Linuxcare missed an opportunity in late 1999 to go public when investor enthusiasm for Linux was at its peak. During that time, Red Hat, VA Linux Systems and Caldera Systems managed to stage successful initial public offerings.

Sources familiar with the plans said layoffs are likely to include higher-level executives as well as lower-level employees in departments such as finance or human resources.

Thomas said the companies have a signed a letter of intent to reach a definitive agreement, writing in a memo Thursday that was posted to news and discussion site Slashdot. Linuxcare confirmed the authenticity of the memo.

"Our discussions with Linuxcare...have become more serious and have resulted in the signing of an LOI (letter of intent)," Thomas wrote. "The boards and management teams of both Turbolinux and Linuxcare believe we have very complimentary strengths that together make us much stronger as combined companies."

In a Linuxcare memo obtained by CNET News.com, Linuxcare Chief Executive Arthur Tyde told employees of the discussions Thursday, "We feel both companies have complementary strengths that together would make us the strongest player in the open-source space."

Both companies, while among the most prominent Linux firms, have been working hard to establish themselves after the days of easy money for Linux ended.

Turbolinux filed to go public in October, hoping to raise about $60 million. In the meantime, it laid off some of its staff and raised $30 million to keep operations going.

Linuxcare filed for an IPO but postponed it amid layoffs, the departure of chief executive Fernand Sarrat, and other problems. Tyde, the company's founding CEO, resumed that role in October.

To keep the company running, Linuxcare closed a $30 million round of funding in August.

Turbolinux recently has expanded deals with Compaq Computer and IBM.

One new area for Linux is the "embedded" area, special-purpose non-PC computing devices such as network routers, handheld computers or set-top boxes. Two embedded Linux companies, Lineo and Lynuxworks, have filed to go public.

Lynuxworks, already an established embedded software company, filed its IPO plans in October. Lineo filed its IPO plans in May, but the company on Friday withdrew the public offering plan.