RealTime IT News

From Emerging to Merging

The road from emerging technology to consolidating market is a short one these days.

Just six months ago, there were no public companies built around the Linux operating system. Now there are several (with more in the pipeline), and already they're starting to merge.

VA Linux Systems (LNUX), which sells Linux-based computers and services, on Thursday said it has purchased Linux news/information Web portal Andover.Net (ANDN) in a cash and stock deal valued at $1.04 billion.

The deal gives VA Linux something it lacks - an Internet component. And that's critical, for the future of the free operating software is inextricably dependent upon the Web as a development, delivery and information vehicle. After all, nobody is more "wired" into the 'Net than the core Linux customer - programmers.

Shares of Andover.Net were up nearly 10 percent to 45 9/16 early Thursday afternoon, and no wonder. Under terms of the merger, Andover.Net's stock price is set at $58.17 per share. At that price the company would have a market capitalization of $870 million, and a valuation of 232x trailing 12 months' revenues.

Not surprisingly, VA Linux shares dropped after the deal was announced Thursday as many investors felt the company was paying too much for Andover.Net. By mid-afternoon, LNUX was trading at 128-1/16, more than 8% below Wednesday's close.

Expect to see more merger activity as Linux companies pumped up with IPO money flex their muscles in the frenetic battle for market share. VA Linux, even after Thurday's stock dip, has a market cap in excess of $5 billion, while Red Hat (RHAT), also down Thursday, is at $13.3 billion and Cobalt Networks (COBT) at $2.7 billion.

One likely candidate for a buyout is LinuxOne, a software vendor with no revenue history that is planning a smallish IPO later this month. The company hopes to raise $24.8 million in an offering of 3 million shares under the ticker symbol LINX.

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