Novell to buy consulting firm, get new CEO

In a bid to reposition itself, struggling software vendor Novell Inc. yesterday announced an acquisition of IT services and consulting firm Cambridge Technology Partners Inc. that includes Novell CEO Eric Schmidt giving up his position as the company's top executive.

As part of the acquisition - a stock-swap deal valued at about US$266 million - Schmidt will become chairman and chief strategist at the Provo, Utah-based company. Jack Messman, who has been president and CEO at Cambridge Technology Partners in Cambridge, Mass., is due to take over as CEO at Novell once the deal is completed.

The acquisition would combine two companies that have both been beset by losses and layoffs due to declining revenue.

Novell is trying to recover from a series of losses that prompted the company to lay off 16 percent of its workforce last September. For its first fiscal quarter ended Jan. 31, Novell reported an operating loss of $13.3 million and a net deficit of $7.8 million on $245 million in revenue -- a figure that was down 22 percent from $316 million in the same period a year earlier.

Cambridge Technology Partners has gone through two rounds of layoffs since last fall, the most recent coming in January. The consulting firm lost $19.4 million on revenue of $125.1 million in last year's fourth quarter, and last week its revenue prediction for the current quarter was lowered to about $120 million.

In a conference call with financial analysts that was broadcast via Novell's Web site late yesterday, Schmidt said the deal is meant to help the company as it tries to reinvent itself and increase the revenue it gets from networking services and consulting.

Last spring Novell reorganized itself into four new business units and said it was moving to reduce its reliance on sales of packaged software. "We are doing exactly what we said we would do," Schmidt said yesterday, adding that the addition of Cambridge Technology Partners "takes Novell to where we want to be over the next year."

A Novell spokeswoman today said the planned CEO switch reflects the change in emphasis toward services and consulting. Cambridge Technology Partners is eventually expected to account for about 40 percent of the combined company's revenue, she added. Given that, she said, Novell's board felt it was "appropriate to move to a more solutions-oriented" CEO in Messner.

The acquisition has been approved by the boards of directors at both companies and is expected to be completed in Novell's fiscal third quarter, which ends in July. Under the deal, which is still subject to approval by Cambridge Technology Partners' shareholders, the consulting firm will become a subsidiary of Novell.

Despite the fact that it will be owned by Novell if the deal goes through, Messman said in a statement that Cambridge Technology Partners "will maintain our objective and independent point of view" when recommending software to users. Novell's support for open standards and operating system independence "is completely consistent" with the way the consulting firm operates, he added.