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Corel buys graphics software maker

Corel says it will acquire GraphicCorp in an effort to beef up its Web business by providing electronic clip art and images to software and hardware companies.

Corel said today it will acquire GraphicCorp in an effort to beef up its Web business by providing electronic clip art and images to software and hardware companies.

Ottawa-based software company Corel said it will buy GraphicCorp for a combination of $4 million in cash, which is payable over a six-month period, and 1 million shares of Corel stock. The total value of the deal is approximately $10.3 million, the companies said.

GraphicCorp, the Los Angeles-based digital content supplier, said its customer base includes Microsoft, IMSI, Geocities, and Xoom. Corel said it's "committed" to maintaining relationships with GraphicCorp's customers.

GraphicCorp houses more than 2 million Web images, Web animations, clip art images, photographs, and downloadable applications. Corel said that with its own collection of clip art and electronic images, its acquisition of GraphicCorp will help boost its position as a digital content supplier.

"In general, this [acquisition] will be a major cornerstone of our Web-based and e-commerce activity," Corel CEO Michael Cowpland said in a teleconference with reporters earlier today. "It's a very good fit for Corel."

"As part of our evolution to a Web-based provider of clip art, photos, and Web images, we feel Corel is the right company to take over and reach millions of Internet graphic users," GraphicCorp CEO Jeff Bianco said in a statement. Adding later during the conference call, "We needed to partner with a company that has a larger presence on the Web than what we could do on our own. We chose Corel because they have more users."

Corel said it's immediately offering 10,000 free vector images and 100,000 Web images through its Web site to give users a preview of how much the image collection has grown as a result of the acquisition. A paid subscription-based model will follow.

Under the agreement, GraphicCorp will operate as a division of Corel. Both companies said they will be working together to transition the business over to Corel in the next six months.

In March, Corel warned it would miss analysts' first-quarter estimates. As previously reported, the company said it would report a big loss for its first quarter of approximately 24 cents per share. Corel said revenues for the quarter would total approximately $40.3 million, compared to sales of $45.4 million and a loss of 36 cents per share in the same period one year ago. Wall Street expected the company to report a profit of 3 cents per share for the quarter, according to a consensus of analysts reported by First Call.

While Cowpland didn't quite delve into specifics on how the GraphicCorp acquisition will effect Corel's second quarter, he did say that they don't foresee much of a hit on earnings as a result of the acquisition. He stressed that the company will definitely pick up business from GraphicCorp and possibly add to its Web revenue.

"The company [GraphicCorp] is Web attractive," Cowpland said. "It's right on the bull's eye of where we want to go."

Shares of Corel rose 0.06 to 3.25 in afternoon trading.