by Brenon Daly
As many of us get ready to sit down with friends and family for our annual Thanksgiving dinner on Thursday, our thoughts inescapably turn to poultry. When we look around at some of the deals out there right now, our thoughts also turn to poultry. For instance, whenever Corel (CREL) comes up, we can’t help but think to ourselves, ‘What a turkey.’
By ‘turkey,’ we don’t just mean that Corel has been a second-rate software company and an even worse investment. (Although both are certainly true. Corel shares have never traded above the price at which they were spun off in mid-2006, and currently change hands at just one-quarter of that level.) But we also mean that since the grab-bag software vendor went private in mid-2003 with Vector Capital, Corel equity has been carved up like a Thanksgiving turkey. And now there’s a fight brewing over one of the drumsticks.
As we’ve chronicled in the past, Vector has been angling to repurchase the chunk of Corel that it spun to the public three-and-a-half years ago. Vector recently offered to repurchase the one-third of Corel shares that it doesn’t own at $4 each. While that was a bit higher than it initially offered in late October, the bid is substantially below its offer of $11 per share back in March 2008.
Vector’s effort received a new urgency this week when Corel warned that it runs the risk of falling below certain covenants and defaulting on its loans unless the sale to Vector goes through. The deadline for being in line with the covenants is November 30. The buyout shop contends, among other things, that the costs of Corel being a public company get in the way of making the necessary investments to keep the 24-year-old firm competitive. Corel’s investors aren’t necessarily buying that, at least not at the price offered by Vector. Corel shares have traded above the $4 bid for the past two weeks.