Vector, Corel Deal Awaits Approval

Vector Capital will buy all of the outstanding common shares of struggling Corel, providing the deal is approved by a court and shareholders.

San Francisco-based Vector Capital Corp. will buy all of the outstanding common shares of struggling Canadian software maker Corel Corp., providing the deal is approved by a court and shareholders.

This follows a report by eWEEK Thursday that Corel was set to be acquired by Vector Capital. In March, Corel admitted that it was actively trying to find a buyer for its business and had signed a non-disclosure and standstill agreement with Vector Capital that let Vector investigate a takeover bid.

The two companies said in a statement released on Friday that under a Plan of Arrangement, still to be court- and shareholder-approved, Corel shareholders would get $1.05 in cash for each common share held. This would include "all common shares which may become outstanding on the exercise of options, warrants and other securities exercisable for, convertible into or exchangeable for common shares. Upon the completion of the arrangement, Vector and its affiliates will own all of the outstanding shares of Corel," the statement said.

The $1.05-a-share price is slightly less than the $1.10 minimum that Corels board in March said it would recommend shareholders accept from Vector Capital. The March deal also forbade Vector from making a formal takeover bid for a price of less than $1.00 a share over the next six months.

Corels board of directors on Friday said they have agreed, subject to certain conditions, to recommend that shareholders approve the latest arrangement and to do a pre-closing reorganization of certain assets, convene a meeting of the shareholders to consider and approve the arrangement, and to diligently pursue the application for the required court approval.

But, under the agreement, Corels board can still consider and support any better proposal. If that happens, Vector Capital will have to either match or better that alternative plan from a financial perspective, Corel said. Also, if Corel finds and accepts a better proposal, Corel would be "required to pay Vector a termination fee of $2 million as well as a portion of Vectors expenses relating to the arrangement."

"Complete details of the arrangement will be provided as part of the information circular that Corel will distribute to registered shareholders in July 2003," the Ottawa-based company said.

James Baillie, the chairman of Corels board, said on Friday that the arrangement represents an opportunity for Corels shareholders to realize the value of their shareholdings. "The price per share represents a premium of 42 percent to the market immediately prior to our announcement that Vector had entered into a non-disclosure and standstill agreement with Corel," he said.

"We have also received the opinion of CIBC World Markets that the cash consideration to be received by the shareholders under the arrangement is fair from a financial point of view. In light of these facts, the board concluded that the proposal put forward is in the best interests of the company and its shareholders and has therefore confirmed the transaction subject to shareholder approval and the absence of a superior transaction proposal," Baillie said. Alex Slusky, Vector Capitals managing partner, on Friday welcomed the agreement, saying he felt Corel could best move forward as a private company. "Without the costs and distractions of the public market, Corels dedicated employees can focus on what they do best—delivering the highest quality software products to a diverse global customer base," he said.

Corel will apply to the court for procedural instructions within the next two to three weeks. It also intends to hold a shareholders meeting to consider the arrangement and hopes to complete the arrangement by the end of July if approved by the court and shareholders, the company said.