Vector Capital Corp., a San Francisco-based investment firm, recently offered to acquire Corel Corp. – a deal worth US$97.5 million or US$1.05 a share – in an effort to help stabilize the struggling software maker.
Alexander Slusky, a managing partner at Vector, said taking Corel private will benefit the company through dramatic cost savings in terms of legal fees, liability insurance and communicating with a large base of outside shareholders. “All those dollars can be better spent investing in great new products and servicing its customers,” Slusky said.
During a recent conference call, James Baillie, chairperson of Corel’s board of directors, explained some of the difficulties which have hampered growth.
“In Q1, despite making progress and managing our costs, we continued to face challenges driving revenue growth,” he said. “It remains clear that we have a considerable distance to travel in the current economic [time] if we are to deliver the type of growth and profitability necessary to favourably impact the share price,” Baillie said. Part of this has been due to declining revenues from Corel’s major product lines, which include CorelDRAW and WordPerfect.
Alister Sutherland, director of software research for IDC Canada Ltd. in Toronto, said this acquisition agreement is further evidence that Corel has been in trouble for some time.
“When you have a company that three years ago was worth hundreds and hundreds of millions of dollars and now they can barely get $100 million for it from a group of pretty cagey investors, private investors, I would say that is pretty clear evidence right there. Otherwise they would find another way,” Sutherland said.
After realizing Vector’s intentions, Baillie said Corel “triggered an outreach effort to find if there were any competing competitive offers that would be more favourable.”
Though the company had a number of approaches from other organizations, there were no firm offers, he said.
During the conference call, Derek Burney, president and CEO or Corel said that although he is sure the board of directors has secured the most attractive offer possible for the company, not all shareholders feel the same way. “I’ve received numerous e-mails over the past few days and weeks, some from shareholders that are supportive of the deal with Vector and some from shareholders who are passionate in their opposition to a potential acquisition.”
Sutherland said that Burney and company inherited a very difficult situation – perpetrated by Corel’s founder, Michael Cowpland, who is still facing insider trading charges. “And Burney has done a credible job of trying to turn the company around. It’s certainly in better shape than when he found it,” Sutherland said.
He added that Vector is acquiring Corel for “a bargain basement price” and because of the vested interest that Vector already has in Corel it is trying to “minimize their risk of exposure and maximize the amount of return they might actually get. The broader shareholders may not like it, but I guess it’s better than Chapter 11,” Sutherland said, referring to U.S. bankruptcy legislation.
Sutherland added that there aren’t “a lot of legs left in Corel at this point because it has been driven into the ground by Cowpland” – in large part due to big gambles that never seemed to pay off – and it is possible that Vector may try to get its money back from Corel through its intellectual assets, basically dismantling and folding the company, he said.
