It has become commonplace to see initial public offerings from earlier private equity holdings that were once public and taken private.  Yet it is very odd to see a company get acquired in a go-private deal to ultimately be followed by a re-IPO and then ultimately see a go-private transaction come its way yet again.  But that is what we are seeing as a possibility, again, in Corel Corporation (NASDAQ: CORL).

After yesterday’s close came an offer from a Vector Capital entity called Corel Holdings, L.P. that it has formally commenced an all-cash tender offer to acquire all the issued and outstanding common shares of Corel Corporation at $3.50 per share (US Dollars). While the tender offer is set to expire on Wednesday, November 25, 2009, the still public Corel’s board of directors has already said publicly that it will review the tender and will recommend to holders within 10 business days.  Until then, the company has asked holders to take no action at this time.

Corel may be the strangest case for the entire decade in the world of private equity, mergers, IPOs, and going-private transactions.  Corel came public in early 2006 and never really caught on as a growth story despite it having grown.  Revenues did grow each year since its IPO: $268.23 million in fiscal NOV-2008; $250.48 million in fiscal NOV-2007; and $177.19 million in fiscal NOV-2006.  With no solid Thomson Reuters data, all we can do is tally up the last three quarters, which has been in decline, to say that revenues have been almost $154 million in the trailing three-quarter period. Yet shares spent almost all of 2006 to 2007 in a trading band of $10 to $15, then a go-private offer was made when shares were under $10 in early 2008 that kept the stock above $10 for most of early to mid-2008.  Then came the meltdown where shares went down to slightly under $2.00 early this year before a recovery to above $3.00 of late.

In the performance we have noted how a buyout came in early 2008.  That was also from Vector, and at $11 per share.  We had penciled in that Vector owned some 69% of the company at the time.  They own roughly 67% of the public Corel today.  But Vector acquired Corel in August 2003 for a deal valued around $97 million or about $124 million if you include the convertible debt.

CHLP owns about 67% of Corel’s outstanding common shares on a fully diluted basis.  The stock is trading at $3.60, above the tender price, in hope or in anticipation that Vector can pay much more.  At the $3.60 price, we show an implied market cap of $about $93.25 million.  Vector would be getting to take this company private, again, for just north of $30 million.

Corel wants to be a competitor of Microsoft Corporation (NASDAQ: MSFT) with WordPerfect and its own office suite products and would love to be a real competitor of Adobe Systems Inc. (NASDAQ: ADBE) with its CorelDRAW graphics suite.  You can never say never.  After all, Google has gone after this market in part with free offerings and Sun has tried with lower priced offerings.  But thinking of Corel in that light only needs the reminder that many other public and private players have tried to win in those arenas, and Corel has been on the scene for well over a decade.

We’d love to accuse Vector of trying to steal Corel for a small song.  The problem is that the company is not consistently profitable and it has not shown much in the way of being a beneficiary from coming public once again.  Some of Vector’s noted investments are SafeNet, Precise Software Solutions, Printronix, Register.com, Tripos and Watchguard Technologies.  Regardless of how this turns out, Corel is becoming one of the strangest go-private, M&A, and IPO stories of this decade.

JON C. OGG

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