Corel Saves Itself, WordPerfect, and CorelDraw from Brink
By Jacqueline Emigh
PCWorldNov 24, 2009 3:10 pm PST
In a desperate bid for survival, longtime office software maker Corel has agreed to a takeover by its majority investor, Vector Capital, a move that could help keep classic software packages such as WordPerfect and CorelDraw around as Microsoft Office alternatives, at least for a while.
Founded in 1985 with CorelDraw as its linchpin, Corel has struggled to compete with Microsoft Word and Microsoft Office after acquiring the WordPerfect software title from Novell back in 1996. Corel has also produced literally dozens of other software titles over the years, often after acquiring them from other software vendors.
Although some of these products have since been discontinued or sold to other companies, the list includes Corel Video; Corel Linux; Barista, a Java-based document exchange format; the archiving software title WinZip, first created by the company of the same name; Quattro Pro, a spreadsheet program acquired from Borland, Paint Shop Pro, first developed by another acquisition, Jasc Software; Dream3D, for 3D modeling; and Paradox, a relational database obtained from Borland.
The gloomy money picture at Corel stands as a vivid example of how current financial conditions can wreak a disproportionate amount of havoc on smaller companies without deep pockets that are trying to compete with corporate giants such as Microsoft.
When the smaller company at risk is a software maker, PC users can end up on the losing end, too.
Vector Capital first entered the picture at Corel in 2003, when the venture capital (VC) firm bought the software company for $133 million. Vector then took Corel public in 2006, but kept majority ownership. Since then, Corel’s annual revenues have plunged to about $200 million from a previous level of around $250 million. Its stock value has also plummeted, particularly over the past ten months.
In a recent interview in the Wall Street Journal, Amish Mehta, partner at Vector, admitted that Vector has tried everything — including acquisitions, new products, and management changes — at Corel, but without success. Mehta blamed Corel’s sliding stock prices on the recession.
Actually, a buyout of Corel has been looming since last spring. In March of this year, Vector offered to acquire Corel’s remaining shares for $11 per share, but then withdrew the offer after Corel said it would pursue “alternative relationships.” In August, two other parties — unnamed by the WSJ — offered a company buyout at $12.50 per share. But they later cut the offer to $10.50 per share and then took the offer entirely off the table due to tightening bank credit.
Another VC firm, ESW Capital LLC, bought a 17.4 percent interest in Corel for the suddenly miniscule stock price of $4.75 per share earlier this month. ESW also offered to buy the company for an undisclosed price, according to an account by Dow Jones Newswires.
Now Vector, which currently owns a 68 percent share, will be taking Corel private again, nailing down the remaining shares at the bargain basement price of only $4 per share.
In an announcement on Monday, Corel justified the decision to accept Vector’s offer by saying that complete ownership by Vector is needed to raise capital quickly and avoid defaulting on its loans.
Although Corel’s other shareowners will take a bath, Corel seems to have little other choice at this point if it wants to keep itself and its current software product line-up alive, even temporarily.
Although Vector did fail in its attempt to take the company public, the VC has long paid more than lip service to trying to save Corel, as evidenced by a Corel case study on Vector’s Web site. Alternatively, Corel might easily fall prey to the “slash-and-burn” tactics of less scrupulous investors.