INVESTMENT
Microsoft buys 25 percent of rival Corel
03-10-2000
by Paul Drury
Microsoft is to invest USD135 million in a 25 percent stake in rival software company Corel, with whom it will now work in a "strategic alliance".
The investment is a lifeline for Corel, a longtime but recently struggling competitor of Microsoft's in the word-processing and spreadsheet market. For Microsoft, the deal helps maintain an appearance of competition in the applications-software business.
This is critical for the US giant at a time when it is appealing an anti-trust conviction that could force a break-up of its business. In the past, Microsoft has also invested in struggling rivals such as Apple Computers and Inprise Corp.
Corel, a Canadian-based company, reported at the end of August that it had just USD11.6 million in cash left and said it needed to cut USD40 million in annual costs to avoid running out of money. Founder and chief executive Michael Cowpland resigned on August 15. In September Corel said it would close its Dublin operation, making 90 percent of its 139 employees redundant.
In a joint statement issued on Tuesday, the companies said they have agreed to work together to develop applications based on Microsoft's Internet-based .NET initiative, which seeks to adapt Microsoft's existing software to the Internet and develop new, Web-based services.
They have also agreed to a series of joint marketing initiatives, including trade show appearances, and will provide each other with representation on their mutual Web sites. Microsoft and Corel said they had agreed to settle "certain legal issues" as part of the deal, but refused to disclose what those issues were.
"Corel has long recognized the potential of the Internet to speed up the delivery of applications and services to our customers worldwide," said Corel's interim president and chief executive officer Derek J. Burney. "By leveraging Corel's development expertise and popular product line with Microsoft's .NET platform, we believe we have found a great combination to accelerate this process."
Microsoft has purchased 24 million non-voting convertible preferred shares at a price of USD5.625 per share, a premium of more than 50 percent above Corel's stock price before the deal was announced. The deal makes Microsoft one of the Ottawa company's largest shareholders.
A Microsoft spokesman denied that anti-trust concerns motivated the deal. He said the company is investing in Corel because the deal makes good business sense and will help Microsoft deploy .NET services and software.
Analysts pointed out that locking Corel into the .NET strategy has an added bonus for Microsoft as the Canadian company had recently started promoting products based on the Linux operating system, which is now Microsoft Word's only serious rival.
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