Corel's Inprise/Borland merger shaky, analysts say
Reuters Company News - May 03, 2000 18:30
(In U.S. dollars unless indicated)
By Susan Taylor
OTTAWA, May 3 (Reuters) - Canadian software maker Corel Corp.'s all-stock acquisition of California's Inprise/Borland Corp. is showing more signs it could be in deep trouble, analysts say.
The merger has come under increasing shareholder criticism because its value, which is tied to Corel's stock price on Nasdaq, has sunk 65 percent since the deal was announced in February -- from $1.07 billion to $374 million on Wednesday.
The biggest setback came with Inprise/Borland's decision to ask its financial advisor to take a second look at the deal to determine if it is fair, considering Corel's dwindling cash reserves and slumping share price.
"If the management there is having second thoughts, then it's a definite element of uncertainty," said Jean W. Orr, analyst at Bluestone Capital Partners. "It sounds like the Inprise/Borland management would at least like to renegotiate the terms."
Internet software provider Inprise/Borland expects the review to be ready in about a week's time. The firms will then file final registration, the S-4 document, of the merger with regulators.
If Inprise/Borland kills the deal, it faces a $29.5-million walk-away fee, but if shareholders vote down the deal there is no penalty.
"I would guess that there is a less than 50 percent probability the deal will go through," said Duncan Stewart, fund manager at Tera Capital Corp.
"People are saying 'Oh God, this is nowhere near the company we thought we were getting.' What would help is if (Corel) had real revenues...growth on the Linux side, less erosion of the existing businesses."
The second review comes after Corel reported in March a first-quarter net loss of $12.4 million, or 19 cents a share, on sales of $44.1 million. The Ottawa-based software developer also warned it expected to lose money for another two quarters.
In a subsequent securities filing, Corel warned it would face a cash shortage within three months if a merger with Inprise/Borland did not proceed, or if it did not get other sources of financing.
In March, former Inprise/Borland director Robert Coates, who is chief executive of investment company Management Insights Inc., said he had resigned from the Inprise board to protest the merger because it inadequately valued the company.
Coates, who holds a three million shares of Inprise/Borland, or 5 percent, has filed a lawsuit against Corel and Inprise/Borland executives that claims the deal was induced by Corel "through misrepresentations as to its current and expected financial results."
If the deal fizzles, Corel won't go bankrupt, analysts said. "They will raise money at some point, they'll get it somewhere, somehow -- it will not be at a very good price, but it'll work," said Stewart. "They're not going to go bankrupt."
Characteristically, Corel chief executive Michael Cowpland is confident the deal will go through.
"The benefits were based upon a strategic fit all along and the strategic momentum's been very good," he told reporters on Wednesday after a speech at an Ottawa trade show. "Really, we have nothing to worry about."
Corel doesn't need Inprise/Borland's money to survive, he added, pointing out the company has run with tight cash levels for the last four years and has sources of financing.
Cowpland, who said the two companies are in daily discussion, added he has no doubt Inprise/Borland's board of directors still supports the deal.
Corel will market the deal to shareholders once the final S-4 is filed within about 10 days, Cowpland said. A vote will then follow in about six weeks, he added.
($1=$1.49 Canadian) |
