Struggling Corel reported both good and bad news late last week. The Ottawa-based applications vendor and Linux distributor announced some much-needed extra financing, but it also said two senior executives have resigned.
On the financing side, Corel said it has struck a "bought deal" agreement worth $US10 million with Canaccord Capital, a Vancouver-based investment firm. "Bought deal" is a term used in securities underwriting that implies a firm commitment to buy an entire issue of shares outright from the issuing company.
The agreement between the two companies also creates the potential for Canaccord to inject another $10 million into Corel at a later date. Subject to regulatory and stock exchange approvals, Corel said it plans to use the new funding to help pay for a promised cost-reduction plan aimed at reducing its annual expenses by about $40 million, according to company CEO and president Michael Cowpland.
"Having secured this source of financing, we can now turn our full attention towards executing our short- and long-term strategy, which will include an aggressive cost-savings plan," said Cowpland in a statement.
Alarm bells about Corel's financial standing began to ring last month when in a filing with the US Securities and Exchange Commission (SEC) the company said it could run out of cash in 90 days if its planned acquisition of US development tools vendor Inprise/Borland didn't proceed.
Then, earlier this month, Corel and Inprise/Borland announced that their deal -- originally valued at $US2.44 billion -- was being terminated after a first-quarter loss and the SEC filing combined to drive down the price of Corel's stock. Corel had hoped to focus the combined entity on the burgeoning market for the Linux open-source operating system.
Dan Kusnetzky, an analyst at International Data Corp, said the new financing will help keep Corel afloat. But the company still faces big challenges, he added.
Corel is trying to transition from a vendor of Windows applications to a Linux operating system provider, Kusnetzky said. That shift will be a rocky one to navigate, he said. The key is continued financing and gaining favourable reviews from Linux users, he said.
The executives whose resignations from Corel were announced yesterday are Eric Smith, who was the company's general counsel, and Sandra Gibson, who had been executive vice president of corporate services. Smith's resignation is effective from June 16, while Gibson will leave Corel at the end of next month.
Corel currently is in a quiet period leading up to the release of the financial results for the company's second fiscal quarter, which are due out in mid-June. But Corel yesterday claimed that the executive departures weren't tied to its financial problems.