Corel Going Private to Avoid Credit Default

Corel Corporation, makers of WordPerfect, CorelDraw, Painter, and other software, is going fully private to avoid defaulting on its debt.

Long-time software developer Corel Corporation has revealed in an amended SEC filing that it is accepting an offer from Vector Capital, its majority investor, to take the company completely private. Under the deal, Vector Capital will acquire the remaining outstanding 32 percent of Corel’s shares that it doesn’t already own. The move will give Corel a cash infusion necessary to avoid defaulting on loans on November 30; however, it also means Corel will be completely controlled by Vector Capital once the transaction is done—and Vector might be getting a pretty good deal.

In addition to WordPerfect, CorelDraw, Painter, and WinZip, Corel develops a number of multimedia and graphic design software titles; however, the company has effectively been up for sale for a year and a half. Vector Capital first offered to buy out the company in March 2008 for $11 per share, but after five months of dilly-dallying Corel indicated it wanted to pursue other acquisition possibilities. By August, Corel was entertaining two offers to buy the company at $12.50 per share, but those quickly dropped to $10.50 per share; by the beginning of 2009 both offers had dried up in the wake of banks tightening credit due to the global financial crisis. Vector Capital re-asserted itself in August of this year, offering just $3.50 for each share it didn’t already own; two week ago, the company increased that offer to $4 per share.

Corel’s operating requirement demand the company keep its complete debt level below 2.75 times its unadjusted trailing 12-month earnings. The takeover will provide a rapid injection of funds that will enable the company to avoid defaulting on its loans.