RealTime IT News

Corel in Bed With Microsoft

Shares of Corel rocketed 57% following news that Microsoft would pocket a 25% stake in the struggling Ottawa-based software developer. Redmond's eight hundred pound gorilla will buy 24 million non-voting convertible preferred shares for nearly $135 million, or about five and a half bucks a pop. What was a substantial premium paid prior to the announcement ended the following trading day at a discount as investors loudly cheered news of the deal.

The terms of the agreement remain shrouded in pseudo-secrecy, but early indications have Corel hopping on Microsoft's .NET bandwagon where the pair will jointly develop applications for the new platform. There's much speculation swirling that this latest move by Softie stems from an interest in keeping a potential competitor afloat while it navigates through the antitrust appeals process. While that reasoning may seem plain as day, I doubt highly that it's a key motivator for the software giant, nor will it factor in materially during appeals. Microsoft surely has an agenda, but what it is ain't exactly clear.

One thing that is noteworthy is the comparisons one can draw between this latest investment and Microsoft's similar surprise $150 million stake in Apple Computer three years ago. Then-interim-CEO Steve Jobs' inaugural steps toward leading discouraged Apple investors to the promise-land was to turn its most bitter enemy into an ally. Burying the hatchet with billionaire-Bill tied a rabbit's foot around Apple's stock, rewarding investors handsomely. And you can hardly blame Corel shareholders for getting almost giddy at the prospects of a repeat performance.

Some skeptics of the deal and Microsoft in general will be waiting for the other shoe to fall. That may indeed materialize, but being cash-strapped makes for strange bedfellows, and after Corel's ongoing fight for survival and highly publicized difficulties, this cash infusion can only be a win-win. Anyone who tells you different should try telling that to the company's shareholders who just last week were making preparations to use their stock certificates to line the catbox. Former CEO Michael Cowpland's abrupt departure, dwindling cash reserves, and mounting losses all but sealed Corel's fate - until now.

After Cowpland exited his role as top banana, Corel bumped Derek Burney up to interim president and CEO. They say necessity is the mother of all invention, and if Corel's latest quarterly results are any indication, truer words were never spoken. The company steamrolled consensus forecasts late last month, delivering a narrower-than-expected loss, showing a real effort to tighten the belt and bring spending under control. Following the Microsoft announcement this week, the company dropped the interim from Burney's job title while rewarding four of his colleagues with executive vice president roles. For the boo-birds who counted Corel out - stick around - things are just getting interesting.

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