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Mandrakesoft in $7.3 million stock sell-off

Move should open the way for the Linux seller to buy other companies.

Shareholders of Mandrakesoft have approved a stock sale to raise as much as $7.3 million, a move that should make it easier for the Paris-based Linux seller to pursue its acquisition strategy.

A vote on Monday approved the sale of up to 1 million shares at 6 euros, or $7.31, per share, Mandrakesoft said in a statement Thursday. The company's stock was valued at 5.69 euros, or $6.93, on Thursday.

"We need this cash to clean up our balance sheet," Chairman Jacques Le Marois said in an interview.

Right now the company is profitable, but financial troubles forced it to file for bankruptcy protection in 2003, and it pleaded for money from users of its products in 2002.

Raising the new funds will permit Mandrakesoft to list its shares for sale on Euronext's regulated Nouveau Marche, not just the unregulated Marche Libre, Le Marois said. The stock has been sold on the Marche Libre since the company's initial public offering in 2001, he said.

Moving to a regulated market will make it easier for investors to purchase Mandrakesoft stock and for the company to make acquisitions, Le Marois said.

The stock sale is a "PIPE" deal--a private investment in a public equity. The investors are from the United States and Europe, and most already are shareholders, Le Marois said. He expects the stock sell-off and move to the regulated market to be finished by the end of 2004.

Mandrakesoft is in acquisition discussions with "several companies" with price ranges between 1 million and 3 million euros (between $1.2 million and $3.6 million), Le Marois said. Those companies typically have a work force numbering between 15 and 40.

Also on Monday, Mandrakesoft shareholders approved the acquisition of services company Edge IT, a six-person services and support company based in France. Mandrakesoft now has about 65 employees, Le Marois said.

The Linux seller is trying to grow, now that it's leaving bankruptcy protection. It earned 1 million euros on revenue of 4 million euros in the nine months ended July 31, the first three quarters of its current fiscal year.

It may not be easy for the company and its flagship Mandrakelinux product to compete with better-established Linux sellers such as Red Hat and Novell.

"Their market presence is light," said Stacey Quandt, an analyst at Robert Frances Group. "They have a following among some desktop users, but that is not an enterprise market."

Mandrake is aiming its new versions of Linux at enterprise customers. New products include two server products--one for smaller businesses and another for larger companies--and desktop software for corporations.

In 2003, 40 percent of Mandrakesoft's revenue came from North America, 22 percent from France, and 22 from the rest of Europe, the company said. More than half of subscriptions to Mandrakeclub, which offers advance downloads, extra software, discounts and other perks, are from North America.