BANGALORE  - Investment fund Elliott Associates offered to buy business software maker Novell Inc   for $2 billion, sending its shares up 28 percent as investors hoped for a better bid.

The bid put the world's No. 2 maker of the open source Linux operating system into play. Analysts said several large software makers may consider bidding as they could sell their business programs alongside Novell's version of Linux, widely used by financial institutions and telecommunications carriers.

Elliott, which already owns 8.5 percent of Novell, offered to pay $5.75 a share, or a premium of 21 percent over Tuesday's closing price for the company that has been hurt by competition and struggled to boost sales.

Shares of Novell shot up to $6.10 in extended trading, as investors bet on a higher bid for the company, which has nearly $1 billion in cash.

The deal price is on the low side compared to recent deals that were transacted in the enterprise software space, Cross Research analyst Richard Williams said. So we would expect to see either a higher bid down the road and or other bidders coming in.

Companies including HP, SAP and IBM could swoop in with a rival bid, Williams said.

Williams also cited Microsoft Corp as a potential buyer. It could be tough for such a deal to clear anti-trust review since Microsoft's Windows operating system sits on about 90 percent of personal computers and has a strong share in the server market.

The two companies already have a strong business partnership through which Microsoft sells Novell's version of Linux to its customers, a deal that angered some Linux developers when it was announced several years ago.

Pacific Crest Securities analyst Nabil Elsheshai said he does not expect a bid from a technology company for Novell, but would not be surprised to see a slightly higher offer from Elliott.

It's fairly inexpensive relative to other software enterprise companies, but it's not surprising given Novell's growth profile, Elsheshai said.

In 2009, Novell's revenue declined about 10 percent.

Novell declined to comment on the news, but said it would issue a public statement later in the day.

Over the past several years, the company has attempted to diversify away from its legacy division with a series of acquisitions and changes in strategic focus that have largely been unsuccessful, Elliott said in a letter addressed to the Novell board.

As a result, we believe the company's stock has meaningfully underperformed all relevant indices and peers, Elliott added.

Elliott, an investment firm with over $16 billion in assets under management, has gone after undervalued companies before and has targeted other technology firms, including Epicor and Packeteer.

Packeteer has since been purchased by Blue Coat Systems and Metrologic was acquired by Honeywell.

It seems in this instance they are buying an undervalued company and looking to break it up and capture the unrealized value from the assets, Williams said. We believe there is $6 a share worth of undervalued assets.

Novell's key rivals include Microsoft, Oracle Corp and Red Hat Inc.

Novell's customers include Wal-Mart Stores Inc, Wyndham Worldwide Corp and Casio Computer, according to its website. (Additional reporting by in Boston and Anupreeta Das in New York; Editing by Anil D'Silva and David Gregorio)