Corel rockets on Microsoft deal

Corel Corp. (Nasdaq: CORL) bolted 72 percent Tuesday after announcing Microsoft Corp. (Nasdaq: MSFT) will invest $135 million in the company. The former arch rivals will also work together on Microsoft's new .NET initiative.

Shares in Corel were up 2.66 to 6.34, already well above the $5.625 price at which Microsoft bought its 24 million share stake. Microsoft shares were up 0.56 to 59.69.

Corel has been in big financial trouble since its merger with Inprise (Nasdaq: INPR) failed. The first step to the company's recovery was the departure of flamboyant CEO Michael Cowpland; officials said on Monday night's conference call that it was Microsoft's relationship with the company's new interim CEO, Derek Burney, that helped initiate this deal a month and a half ago, when he first took the reigns.

All Microsoft's shares in the company are non-voting convertible preferred shares -- at a per share or a total purchase price of U.S. $135 million.

Microsoft said there are two reasons for its investment. "We end up with a great ISV (independent software vendor) with R&D resources for the .NET platform, and it is an attractive investment for us," said Tom Button, general manager of Microsoft's developer division, on a conference call.

"Microsoft will have no control, but an opportunity to participate in financial upside," Button added, emphasizing that the deal is strictly a financial and technological investment, and Microsoft has never considered buying a voting stake in Corel.

While neither Microsoft nor any of its affiliates are entitled to convert the 24 million preferred shares, they will be saleable to, and convertible by other parties. The shares would amount to 24.6 per cent of outstanding Corel common shares.

A number of applications, including CorelDRAW and Linux, the operating system that rivals Windows, will have a .NET suffix, expected towards the end of calendar 2001.

The companies also said in the press release that both companies have "agreed to settle certain legal issues," a statement that caused much questioning on the conference call. Officials from both companies said there were no legal proceedings underway, and the statement was meant to dispel speculations that there were.

The one analyst covering Corel was not available for comment.