French Linux company braves IPO waters

MandrakeSoft begins an initial public stock offering to raise about $3.7 million, shortly after four U.S. Linux companies canceled their IPO plans.

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Stephen Shankland
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MandrakeSoft, a French seller of the Linux operating system, has begun an initial public stock offering to raise about $3.7 million, shortly after four U.S. Linux companies canceled their IPO plans.

MandrakeSoft has begun selling 688,480 shares at $5.41 (6.20 euros) per share on the Euronext's Marche Libre, an unregulated market. That means the company could raise $3.7 million in the offering, which began Thursday and runs through July 27, according to a MandrakeSoft news release.

Though MandrakeSoft is selling a relatively large fraction of the company, 20 percent, for a relatively small amount of funding, the company still stands to make more than the four U.S. Linux companies that withdrew their IPO plans. Lineo, LynuxWorks, Linuxcare and Turbolinux all backed off from IPO plans.

MandrakeSoft, founded in 1998, has struggled to attain the status of leading Linux seller Red Hat, which got an earlier start, went public before investors soured on technology start-ups, and signed partnerships with major companies such as IBM and Dell Computer. But MandrakeSoft has attained widespread use, which analysts say is comparable to the level enjoyed by Caldera International, Turbolinux and SuSE.

"When I look at the consolidation of the Linux market, I think MandrakeSoft is one of the few companies that will survive, even though Red Hat has become the de facto standard for enterprise," said Giga Information Group analyst Stacey Quandt. MandrakeSoft's Linux still is popular with programmers and others who are looking for desktop software rather than the types of products offered by the server-oriented Red Hat, she said.

But MandrakeSoft stands at a financial crossroads, having to choose between just selling its version of Linux and grander expansion plans, according to a source close to the Parisian company.

Last year, the company hired American Henri Poole as chief executive, and Poole first began to emulate Red Hat's focus not on desktop software, but on services and server software. In February, the company went a different direction, acquiring Berkeley, Calif.-based Coursemetric in an effort to break into the market for education over the Internet.

The expansion effort took its toll. From Sept. 30, 1999, to March 31, 2001, the company lost $11.94 million, about three times its revenue in the same period, according to the company.

Though the company fired Poole and cut 30 employees associated with the learning initiative, executives decided to continue the push toward selling services such as training and installation.

The company expects $3.7 million in revenue for the year ending Sept. 30, 2001, but hopes to more than quadruple that, to $17.4 million, the year after by selling services to its customers, one source familiar with the company's plans said. With that plan, the company hopes to become profitable by summer 2002, the source said.

The company has benefited from a partnership under which publisher MacMillan has distributed MandrakeSoft's Linux product. The deal accounted for 70 percent of the company's 1999 and 2000 revenue and about 51 percent of its revenue for the first half of 2001, the company said.

The IPO places MandrakeSoft's market capitalization at about $18.2 million--about 3 percent of Red Hat's $577 million.

Going public on an unregulated market has its pluses and minuses. It's easier than using a regulated market, which requires companies to use more stringent financial reporting methods, but it's harder to attract investors. Using an unregulated market still requires the permission of the Commissions des Operations de Bourse, which regulates French trading.

MandrakeSoft was founded as a volunteer project based on Red Hat's version of Linux combined with the KDE user interface. The company has been gradually moving away from that foundation to create its own software.

Through showing what's under development in the MandrakeSoft "Cooker" and other actions, the company tries to foster good relations with the open-source programmers who collectively advance Linux and related higher-level software.

MandrakeSoft is trying to increase use of its software in companies. Corporate customers include Donatos Pizza.

Belgian bank KBC Securities is underwriting the offering.