We had already commented on hoe the merger offer for Corel Corp. (NASDAQ: CREL) from majority owner Vector Capital might be the strangest merger paths of this decade.  The strange can always get stranger.  Vector Capital had already raised its buyout price for the software company.

Corel’s board of directors said that it intends to complete the revised offer with financial and legal advisors and “in the near future.”

The new offer price for the shares not already owned it $4.00 per share in cash, a boost of $0.50 per share from Vector.  This was largely expected as Corel shares were already trading above the $3.50 original offer.

Vector tried to buy the rest of Corel it did not already own before in early 2008… at $11 per share.  Shares are up 9.6% at $4.00 this morning and we have seen trades as high as $4.05.

JON C. OGG

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

• Accenture (ACN) Cut to Neutral at Goldman Sachs.
• Adobe Systems (ADBE) Cut to Neutral at Baird.
• Amdocs (DOX) Cut to Neutral at Goldman Sachs.
• Corel (CORL) Cut to Neutral at Piper Jaffray.
• Ctrip.com (CTRP) Cut to Neutral at Goldman Sachs.
• IAC/Interactive (IACI) Cut to Equal-Weight at Barclays.
• Intersil (ISIL) Cut to Neutral at Goldman Sachs.
• KLA-Tencor (KLAC) Cut to Hold at Citigroup.
• Sapient (SAPE) Cut to Sell at Goldman Sachs.
• Smurfit-Stone (SSCC) Cut to Neutral at Credit Suisse.

Jon C. Ogg
December 4, 2008

Vector Capital’s SafeNet is a direct competitor of Aladdin.  Aladdinsaid its Board of Directors is reviewing the proposal in consultationwith independent advisors and will inform Aladdin’s stockholders of itsposition.

The company also said it is committed to enhancing shareholder valueand is continuing to implement its strategic plan.  It noted thisincludes organic growth as well as complementary acquisitions, two ofwhich were announced this past month to strengthen its portfolio of ITsecurity offerings and increase our global brand recognition.  CreditSuisse is serving as financial advisors to Aladdin, while Kramer LevinNaftalis & Frankel LLP is serving as U.S. legal counsel; andHerzog, Fox & Ne’eman is serving as Israeli counsel to Aladdin.

The company has not said at what price the offer came in at nor givenany hint of what the alternative transaction terms would be.  Shareswere halted ta $11.53 before being halted, and the 52-week tradingrange is $8.29 to $26.94.  Its market cap based upon the halt price is$160 million.

If Vector Capital sounds familiar, it is the same one who recently wasinvolved with the Corel (NASDAQ: CREL) acquisition which was just called off.  We’d also note that Vector Capital had also attempted toacquire Captaris, Inc. (NASDAQ: CAPA), which also didn’t go through. 

Whether or not this occurs is subject to what the companies and holders decide, so we don’t want to imply that this cannot happen.  Just keep in mind that an initial offer with unknown terms isn’t an a sure bet.

JON C. OGG
August 20, 2008

This buyout was for the 31% of the company that Corel Holdings, L.P. did not already own.  There were already some questions as to whether or not this buyout was 1) going to become effective and 2) actually get approved by shareholders.  The buyout for the remaining shares was going to be at $11.00 per share, yet shares closed at $9.44 on Friday and the 52-week trading range is $6.94 to $13.95.

The buyout group has withdrawn this and will allow the company topursue strategic alternatives to create value.  As shares were at $9.44on Friday, this deal seems suspect or less trusted than othermanagement buyouts.

This is supposedly on the grounds that it will "facilitate pursuit byCorel of alternatives for maximizing value for all of Corel’sshareholders."  Whether or not you believe that reasoning is up to you. If you look over our initial analysis when the offer was made, we noted that it didn’t look like this deal was an assured slam dunk that would be approved.

So far no shares have traded hands pre-market.  The average volume isnow only about 14,000 shares as this has been a pending merger for sometime.  We’ll be looking for more volume today.

Jon C. Ogg
August 18, 2008

The Vector affiliate has proposed to make an offer to acquire all of Corel’s outstanding shares that it currently does not hold at a price of $11.00 cash per share in US Dollars.  We would note that before the stock was halted, shares were trading at $10.80 and the stock has a 52-week trading range of $6.94 to $14.37.  Vector has stipulated that the offer would be conditional upon satisfactory confirmatory due diligence and Corel’s existing credit facility remaining in place following the consummation of any transaction, among other things.

Corel’s Board of Directors has formed a Special Committee of independent members of the Board consisting of Ian Giffen, Steven Cohen and Daniel Ciporin.  The group will assist in evaluating and responding to the proposal and other related strategic considerations.  Corel said it will not provide further comments at this time but will provide updates as further information becomes available. There is also the pre-packaged statement that there can be no assurance that a transaction will be completed or, if completed, of its terms, price or timing.

We frequently cover such issues around private offerings, management buyouts, private equity and more in our open email distribution list where we preview certain issues that will be in our twice-monthly Special Situation newsletter for our our subscribers.

Corel is a leading developer of graphics productivity and digital media software whose offerings include WordPerfect, CorelDraw, Painter, and more.  We’d also note that Vector Capital recently had attempted to acquire Captaris, Inc. (NASDAQ: CAPA).  That was one we covered as having not gone through today. 

If you look above at the buyout offer versus where this one has traded, it doesn’t look like this deal is an assured slam dunk that will be approved.  That answer won’t be known until the firm makes a response.

Jon C. Ogg
March 28, 2008

Jon Ogg produces the Special Situation Investing Newsletter and he can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

• Non-GAAP EPS $0.43 to $0.52 and Revenues of $66 to $70 million; consensus $0.54 EPS and $72 million revenues.

Unfortunately, soft top-line numbers in software companies rarely excite Wall Street; and weak revenues and earnings guidance ahead in software companies turn Wall Street the other way.  Graphics & Productivity products experienced double digit year over year growth for CorelDraw Graphics Suite, WinZip, Painter, Designer and iGrafx.  But that was then. 

This morning after reviewing the numbers it looked like this was so cheap that someone would see a "value stock" that looked cheap.  But in technology most stocks that appear to be "Value Stocks" end up being "Value Traps" that are exactly what they sound like.

The forward fiscal numbers still make the company sound cheap with $1.24 to $1.33 EPS & $244 to $248 million in revenues when you compare this to a $327 million market cap and $13.11 stock price.  But if it it is facing shortfalls over and over ahead, then this will be a stock that looks cheap and either stays cheap or gets even cheaper. 

This is a thin volume cult stock, but shares appear to have traded down about $4.5% in after-hours trading to $12.50; and the range is $11.90 to $14.51 over the last 52-weeks.  Its previous highs were up around $16.00 since coming back out as a public company in May 2006.  There might be some downgrades in the morning, barring anything not known. 

…..And to think Corel’s WordPerfect was once thought of as a "Office Suite" threat to a cardboard and plastic software company run by some guy named Bill Gates.

Jon C. Ogg
October 10, 2007