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Novell up on rumored IBM buyout

Shares surge more than 10 percent on rumors that IBM will make a major move to dominate the corporate intranet market.

Novell (NOVL) shares rose more than 10 percent in trading today on rumors of a buyout by IBM (IBM).

Novell shares jumped as high as 16.6 percent to 10-1/2 in heavy volume before giving up some gains and ending the day at 9-31/32, up 31/32 from yesterday's close. In excess of 31.6 million shares traded hands--more than six times the stock's daily volume, based on a ten-day average.

Fred McNeese, an IBM spokesman, declined to comment on speculation of a Novell buyout.

In recent years, IBM has acquired Lotus Development and Tivoli Systems and has taken an equity stake in NetObjects, McNeese said. These moves may be viewed as a serious effort to gain dominance over corporate intranet servers.

Despite the speculation that Novell's low stock price would make it a cheap buy, some analysts remain skeptical such a move is in the works.

"This situation is possible, though unlikely," said Michael Geran, an analyst with Pershing's DLJ division. "I don't see how this would provide a strategic fit or advantage for IBM."

He added that in its previous acquisitions, IBM has purchased companies not only at a "good buy" but also for a strategic purpose.

Novell's stock, which hit its 52-week low in late June at 6-71/256, has been volatile this month, taking a few wide swings between the 7-1/2 to 9-1/4 range.

Novell, a networking company, has been hemorrhaging of late, with declining sales and a larger-than-expected third quarter loss of $122 million. In an effort to pare down excess inventory, the company halted further shipments into its channel last quarter.