Upside: No eulogies for Corel-Inprise

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http://www.upside.com/News/3921e7bd0_yahoo.html

> No eulogies for Corel-Inprise
> May 16, 2000
> by Sam Williams
>
> As representatives of Corel (CORL) and Inprise/Borland (INPR)
> took turns shoveling dirt over their ill-fated merger plans
> yesterday, observers in the financial community didn't waste any
> time with long-winded eulogies.
>
> "It's completely obvious what happened," said Duncan Stewart,
> technology analyst for Toronto-based Tera Capital. "The deal was
> dead as soon as Corel's market share started dropping. Once
> Inprise investors got wind of how bad the deal was, it was only a
> matter of time."
>
> Indeed. What had begun on Feb. 7 as a potential $1.07 billion
> deal to establish a Linux powerhouse had fallen below the $300
> million mark less than 90 days later as Corel's prices evaporated
> in the face of mounting financial troubles. Software maker Corel,
> based in Ottawa, Canada, saw its stock slip from 20 before the
> deal was struck on Feb. 7 to a close of 5 13/32 on Monday. In
> April, Inprise executives, prodded by shareholders, announced a
> "fairness audit" of the merger plans, setting in motion
> yesterday's announcement. Inprise is based in Scotts Valley,
> Calif.
>
> Corel shares closed at 6 Tuesday, up 19/32. Inprise's shares were
> up 9/32 to 6 1/8.
>
> Another funeral near?
> Now, with the deal gone and both companies' futures uncertain,
> analysts were left to wonder. Would they be attending another
> funeral in the near future?
>
> "The biggest thing Corel needed out of it was the cash to keep
> things running until the Linux market matured," said Rob Enderle,
> analyst with the Giga Information Group. "Inprise had a cash
> reserve that could have kept Corel running, giving the company
> time to bring revenues from its Linux business up to speed. Now,
> without the merger, the company has only a few months' cash to go
> on.
>
> "Things aren't looking good for Corel right now."
>
> To make matters worse, said Tera Capital's Stewart, Corel's
> options for raising short-term cash have grown exceedingly slim.
> Although the company has made an aggressive push into the Linux
> distribution business, Linux sales have actually fallen for the
> last two quarters as the company faces competitive pressure from
> established players such as Red Hat (RHAT) and Caldera (CALD).
> Such weakening performance, combined with the continuing
> uncertainty in the tech market, will make it difficult for the
> company to drum up contributions within the investment banking
> community.
>
> "This is probably the tightest spot Corel has ever been in, which
> is really saying something," said Stewart.
>
> According to the original terms of the deal, Inprise would have
> had to pay a $29.5 million penalty to kill the deal. The fact
> that both companies agreed to walk away without either party
> paying a penalty prompted some news reports to speculate that
> Corel's deal-making leverage was even worse than financial
> records would indicate.
>
> Stewart, however, dismissed such speculation.
>
> Bloom off the rose
> "The major issue here is that the bloom fell of the Linux rose.
> Corel's market share fell, and what looked like a very good deal
> for Inprise shareholders turned into a very bad deal very
> quickly," said Stewart.  "There's no breakup fee if shareholders
> reject the deal, and that was a foregone conclusion at this
> point."
>
> One relieved Inprise shareholder was Don Magie, a Toronto
> resident who launched his own Web page to protest the merger
> deal.
>
> "I actually thought about investing in Corel last year, until my
> broker, who has handled my affairs for a number of years, gave me
> a reality check," he says. "Once the deal was announced, I began
> doing research into Corel.  As I did, it became very clear that
> Corel was not only badly managed but was also in severe financial
> trouble, facts which were borne out by the Q1 results."
>
> Although Magie says he was happy to hear that the deal had been
> called off, he says the fact that Inprise management considered
> it in the first place is a troubling sign. With the deal
> scuttled, Magie sees an opportunity for both Inprise management
> and investors such as himself to help guide the company back to
> market leader status.
>
> "When I look at Inprise I see a business that is hugely
> undervalued," he says. "It could be very successful, and I think
> I can help be a part of that success."

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Gerald Oskoboiny <[email protected]>
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