Software vendor Turbolinux and technical services firm Linuxcare
have called off a planned merger less than three months after the
deal was signed by the two companies.
Arthur Tyde III, CEO at San Francisco-based Linuxcare, yesterday
confirmed that the proposed acquisition of his company by
Turbolinux is being dropped because of the softening economy and
"various financial aspects . . . that couldn't be agreed upon" in
the wake of the merger announcement.
The two companies disclosed the acquisition agreement in February,
saying that the combination would allow them to offer a bundle of
Linux software and services to users. The deal was seen by analysts
as a sign of things to come in the Linux business, which is
currently populated by several small vendors.
But the US economy and IT spending took a turn for the worse after
the agreement was signed, and Tyde said Turbolinux and Linuxcare
decided "the market conditions that brought us together in the
first place had changed." The deal was effectively cancelled last
Thursday after officials on both sides agreed that parting ways
amicably was the best idea, he added.
"There are deals [with users] that we're still going to work on
together," Tyde said of the two companies. "It's not a hostile
situation." Tyde was scheduled to become chief technology officer
at the combined company, which would have retained the Turbolinux
name and been headed by current Turbolinux CEO T. Paul Thomas.
Thomas echoed the view that changed economic conditions helped to
quash the planned merger. "It just didn't make any sense
financially to put the companies together," he said. "There's
nothing sexy about it. There's no conspiracy. We mutually agreed to
go ahead and each run our own companies and continue to work
together."
Linuxcare and Turbolinux did sign a definitive agreement to proceed
in February, and the two companies had begun working together on
some activities, such as having their sales forces make joint
customer visits. But final merger documents hadn't yet been filed
with the government, Tyde said.
"It's kind of like an annulment agreement to a marriage," he said,
referring to the demise of the merger. "You can't really say it's a
divorce, because we weren't really married." The terms of the deal
hadn't been disclosed, but Tyde said there will be no penalties or
payments to each other as a result of its cancellation.
The acquisition of Linuxcare by Turbolinux was seen as a way for
the two companies to round out their offerings by bringing together
Linux-related software and services under one roof. Despite the
deal's collapse, Tyde said, Linuxcare is set to continue in the
Linux services business and has enough cash in the bank to last for
"at least two years".
Dan Kusnetzky, an analyst at market research firm IDC, said the end
of the deal was a big surprise. "It looked like they were well on
their way to becoming one big company, and that company looked
well-positioned to take on the big guys" in the Linux business,
such as Research Triangle Park and Red Hat, Kusnetzky said. The
Turbolinux/Linuxcare combination appeared to be capable of creating
"a pretty formidable competitor," he added.