Corel odyssey leaves investors scratching their heads part 2

You all know that I’m a big fan of the DTM (sans that Libelist at the National Pest), so it pains me to suggest that you just skip some of the newspaper coverage that might be coming out on the topic of Corel’s much-announced going private (see prior post “Corel odyssey leaves investors scratching their heads” August 18-08). This from my “morning” paper a few hours ago:

“August 18, 2008 at 4:18 PM EDT

U.S. private equity firm Vector Capital Corp. has dropped its latest bid to take Ottawa software developer Corel Corp. private for $11 (U.S.) a share – $5 a share less than the price at which it took the company public two years ago.

Vector, based in San Francisco, already owns 69 per cent of Corel through a corporate affiliate and launched its $280-million bid for the remaining 31 per cent in late March.

However, the Canadian company said in a news release Monday that Vector has withdrawn its bid “in order to facilitate pursuit by Corel” of “third-party strategic alternatives” identified by a special committee of Corel’s board of directors for maximizing value for all shareholders.

It gave no additional information on these alternatives, and Corel spokeswoman Jessica Gould said neither the company not interim chief executive officer Kris Hagerman would provide any additional comment.

The special committee, which was established after Vector announced its bid, has now been dissolved and the process will be supervised by Corel’s entire board, the company said.

Investors appeared unconvinced that any better offer may be in the works.

Corel’s shares plunged $1.19 or 12.6 per cent to $8.25 on the Nasdaq exchange after the opening bell.

Vector bought Corel in 2003 for $98-million and took it private. However, it took it public again in 2006 in an initial share offering priced at $16 a share that raised $69-million, but retained a controlling interest.”

Not much of that is, ummm, how do I say this without being critical? Accurate. Here’s what really happened today:

– Vector withdrew its proposal to buy the ~6.5 million shares of Corel that it didn’t already own. The purchase price for those 6.5 million shares was to have been $71.5 million at $11 each; it isn’t a $280 million bid. It’s a $71.5 million bid for the equity they don’t already own. Throw in the $124 million of net debt, which Vector would have assumed at closing, and the bid would have been valued at $195.5 million.

– Corel shares closed up $0.43 cents on the TSX today, for a gain of 4.5%. On the NASDAQ, they closed up about 2%. Someone who might have been counting on a quicker closing did dump 10,000 shares on the NASDAQ at the open, but they traded up from there.

I doubt that “Investors appeared unconvinced that any better offer may be in the works”; I think it is more likely that Corel has cooked up a better offer, but that better offer won’t involve Vector. Although it is unusual to have the entire Board of a public company act as the “Special Committee” when a takeover bid is brewing, it isn’t unheard of.

If there was nothing in the wings, Corel’s independent directors wouldn’t risk the secondary market liability that comes with today’s press release if there’s no prospect for a better deal. Corel Director Ian Giffen is too smart to get that wrong.

– Corel’s IPO involved the sale of 5 million shares from treasury at $16, to raise $80 million in gross proceeds. According to the prospectus, net proceeds were $73.6 million.

Rather than spend your hard earned dough on a broadsheet in search of Corel insight tomorrow, just read it here for free. If you’re overcome with guilt for the free ride, send the $1 to our Charitable Foundation instead.

UPDATE
Our DTM friends rewrote the story to deal with above.

MRM