Venture capital deal puts Corel in play

Corel’s office suite will likely disappear and its graphics software sold to another vendor, observers said following its invitation for a takeover bid from a venture capital firm Monday.

Ottawa-based Corel said it had signed a non-disclosure and standstill agreement with Vector Capital’s

subsidiary, Vector CC Holdings, L.L.C, that could lead to an acquisition proposal once it has completed a due diligence review. Corel also said its board has engaged CIBC World Markets to seek out other potential offers.

The move comes about two weeks after Vector Capital, based in San Francisco, bought out the 22.89 million shares from Microsoft, which it can convert for an approximately 20 per cent stake in the company. Corel said it will agree to anything $1.10 per share or higher. Vector has agreed to pay no less than $1.00 a share, but won’t oppose a competing offer of $1.25 or higher.

Prior to Vector’s proposal, Corel hadn’t been on the lookout for a buyer, according to spokeswoman Anne Vis. The relationship stems, in part, from an investment presentation made by Corel chief executive Derek Burney late last year.

“”This really was initiated by Vector,”” she said. “”Now that we have received this kind of interest, the board has a fiduciary responsibility to go out and make sure that they’re assessing all available options.””

IDC Canada software analyst Warren Shiau said Corel will likely see its product line rationalized through any acquisition, a step he said was overdue.

“”It would have made sense for them a long time ago to just get rid of the whole office suite part of the business,”” he said. “”Just concentrate on the graphics, because the office suite was the losing part of the business.””

Duncan Stewart, a financial analyst with Tera Capital Corp., said Corel’s software assets could fare better as part of a larger company. At the right cost and as one product among the suite from a larger company, Corel could distribute the overhead, the sales and cut back the R&D costs of its applications, for example.

“”Nobody has ever said that Corel software wasn’t any good,”” he said. “”On the CorelDraw side, you’ve got a huge base of people who are devoted and capable users. People will need to do stuff like that for 20, 30, 40 years, and nobody else is probably going to do it better than Corel does.””

Corel has gone through a number of changes over the last year in an attempt to restore profitability, including a temporary move to a direct sales model and a number of bundling deals with its WordPerfect word processing software. Vis said the company is still weighing its options.

“”Nothing beyond the NDA (non-disclosure agreement) has been agreed to at this point,”” she said. “”We really in the early, early stages of this process. We really need to maintain the integrity of the process and allow it to run its full course.””

Despite significant cuts to its workforce la

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