Corel seeks outside expertise after unsolicited bid

Software vendor Corel Corp.’s decision to make Genuity Capital Markets its financial advisor Monday is a “natural follow-on” to an unsolicited bid by Vector Capital, to perform a strategic review of the company to maximize value to shareholders, said an analyst.

Kevin Restivo, senior research analyst for software with Toronto-based research firm IDC Canada, said that bringing on Genuity Capital doesn’t necessarily mean the company is poised to make a major move, however “Corel management is clearly saying that we need to do something different at some point, if anything.”

Last month, an affiliate of Vector Capital, the company that owns 69 per cent of Corel’s outstanding common shares, made an unsolicited bid to acquire the remainder of the shares.

The Ottawa-based company has improved on an operating basis, said Restivo, and its recent stock performance is more a reflection of market volatility and company reputation than anything else. In fact, he said, Vector, in making the unsolicited bid “wants to capitalize on what will be a sure gain in a few years.”

That gain will stem from the acquisitions in recent years that Corel made in support of its digital media strategy – one of which is the 2006 acquisition of WinDVD maker, Freemont, Calif.-based InterVideo. Although Corel’s digital media strategy grants the company “a much sharper focus”, thinks Restivo, the strategy is still in its infancy and not fully understood by investors – a fact that combined with market volatility does put Corel in “a very difficult position.”

He does note that Corel doesn’t need to be acquired, given its clearer vision today and improved operational performance. But, Corel is likely not pleased with how investors are valuing it based on the perception that it’s “an old company by technology standards and people still see it as a WordPerfect and a Draw company.”

It’s fair to say that when a company brings on a financial advisor like Genuity Capital, said Restivo, it is “looking at any and all options,” be it spin off, acquire, or stay the route.

Corel wouldn’t comment on the fact that its special committee of the Board of Directors chose Genuity Capital, but a spokesperson did say in an e-mail that the committee’s mandate is “to conduct a thorough review of Vector’s proposal and examine additional strategic alternatives that may be available to the company and its shareholders.”

In the meantime, Restivo said, Corel will continue to digest its acquisitions and leverage OEM relationships. It’s possible, he added, that it may want to strengthen its enterprise presence in the office productivity arena as part of that strategy review, however, presently it does appear very focused on consumer visual media.

Whether the pace at which the company is “chugging along” is too slow for the patience level of investors remains to be seen, he said.

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