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Content is king. When it comes to Linux, anyway.

Linux hardware-maker

VA Linux Systems


agreed Thursday to acquire open-source content site



in a deal that seemed unlikely just last December, when both companies hit the public markets in highly successful IPOs. The acquisition both highlights an ongoing transformation in the Linux area, and marks another chapter in the short yet eventful life of Andover.

Andover shares rallied sharply, jumping 9 1/8, or 25%, to close at 45 1/8, on word of the deal, which was valued at around $1 billion in cash and stock at Wednesday's closing prices. But VA Linux shares retreated, dropping 8 7/8, or 6.5%, to 127, as investors debated the strategy behind such a move.


At the

LinuxWorld Conference & Expo

at the

Jacob Javits Center

in Manhattan Thursday, some attendees were left scratching their heads. "It's mind-boggling," says Hadar Pedhazur, a venture capitalist with

Opticality Ventures

who follows Linux. "I think it essentially shows that they felt they needed to make a splash. It's to say 'Hey, we're still hot, we're still about Linux.' Let me not go so far as to say it's a desperation move."

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"People are pretty well surprised and don't quite see how it fits together," says Jonathan Corbet, editor of the

Linux Weekly News

. "VA Linux is going for corporate customers, and that's not necessarily what sites like


an earlier acquisition will bring to them." Corbet says his site has been courted by buyers, but isn't on the IPO path.

In a conference call, VA Linux Systems' Larry Augustin said the acquisition of Andover.Net will make the company a "leading destination for Linux and open-source developers." He continued, perhaps a bit ambitiously, that the deal "effectively ... creates a



for developers."

But the acquisition could cause confusion as investors try to make sense of a dramatic shift from VA Linux's original business plan. "To me VA Linux is trying to be too many things at one time," says Pedhazur. "If I were an investor I would rather have seen them execute a bit of the vision they sold me on their S-1." Pedhazur doesn't have holdings in either company.

Shifting Winds

Late last year, VA Linux Systems was a favorite to compete with

Red Hat


in the hot open-source software area, and was an also-ran that had belatedly bought its way into a less important niche. But with the shares of both companies falling sharply since their IPOs and Red Hat itself signaling a move into content by launching

Wide Open News

, a Linux news and information site, it became imperative that VA Linux keep up with the leader by making a deal.

That the company it chose was Andover comes as something as a surprise to Linux watchers. Andover bought its way into the Linux sector in 1999 with acquisitions of Linux-related community and information sites and

. Andover "wasn't really known until it ponied up money and bought Slashdot and Freshmeat," Pedhazur said before the IPO. then went public using

W.R. Hambrecht's

OpenIPO system, which seeks to set a fair price on IPOs by using a Dutch auction method. The system had suffered through poor results before the Andover IPO, which then surprised Wall Street by not only succeeding but indeed perhaps succeeding too well, climbing 252% on its first day, Dec. 8, from a pricing at 18. (That was paltry compared with VA Linux's record 698%

rise the very next day, from a pricing at 30.)

But both stocks have plummeted since their impressive debuts and are off more than 40%.

Ultimately, the move is perhaps a natural for a space that appears overpopulated for now. "It's a young market and there will be consolidation," says Keith Bachman, director of equity research at W.R. Hambrecht.

And for the little-known Andover.Net, it was partly a case of being in the right place at the right time.