Corel agrees to acquisition by Vector

Canadian software firm Corel on Friday announced it has agreed to be acquired by U.S. investment company Vector Capital for $1.05 a share, a total of $97.5 million.

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Including convertible securities, the total estimated value of the deal is $124 million, according to Corel. Pending approval of shareholders and the Canadian Court, San Francisco-based Vector will acquire all of the outstanding common shares of Corel.

"We're satisfied that the proposal tabled by Vector is the best available for shareholders to maximize the value of their investment at this time," said James Baillie, chairman of Corel board of directors, in a conference call.

Corel and Vector entered into a nondisclosure agreement to discuss acquisition terms in March immediately after Vector announced it was interested in acquiring the Corel following its purchase of 19.9 percent of Corel shares from Microsoft, Baillie said. At that time Corel had just been notified by the Nasdaq stock exchange that it was in danger of being delisted because its stock had fallen to $0.70 per share, falling short of the minimum bid price, Baillie said.

Corel's headquarters is expected to remain in Ottawa and there are no layoffs planned of Corel's 810 employees, 500 of whom are in Ottawa, said Derek Burney, Corel president and CEO, during the conference call.

Corel, which makes software such as WordPerfect and CorelDraw, has been plagued with falling revenue for its mature products and less-than-expected revenue for its new enterprise-level products.

"I recognize that our new enterprise-oriented products and solutions, while showing early promise, are still a few years away from realizing their full potential," Burney said. "In addition, it's clear that Corel still has something to prove with its new enterprise customers and we need to regain some of the ground we lost over the years among our retail customer base."

Warren Shiau, enterprise software analyst, from IDC Canada, in Toronto, said in an interview that the situation with Corel is in no way indicative of any negative trends in the Canadian IT market but is simply a result of Corel's strategy of competing against Microsoft in desktop applications. Corel does not possess enough of the corporate desktop market to make it a cash cow, he said.

"If Corel had stayed as a graphics company and maybe moved into stuff like XML later on, it probably would have been more profitable and probably would have ended up on its own," he said.

By going private, Corel will be able to spend more time developing its not-yet-mature products, Shiau said.

"Corel and Vector together, without the distraction of being a public company -- and I think in Corel's case it is a distraction -- it will free up management time to actually work on the business instead of working [to meet numbers] every quarter," he said.

Corel has been negatively affected by tight purse strings in the IT sector and Baillie said he doesn't see any prospect for revenue gains in the near to medium term for Corel.

If shareholders and the court support the agreement, Corel expects the deal to be completed by the end of July. However, Corel can still back out of the agreement if a better one comes along, but it would be forced to pay Vector a termination fee of $2 million plus a portion of Vector's expenses pertaining to the arrangement.