Tuesday May 30 1:49 PM ET
Corel Reverses Recent Declines on Strong Market
By Susan Taylor
OTTAWA (Reuters) - Stock in slumping Canadian software developer Corel Corp. (Toronto:COR.TO - news)(NasdaqNM:CORL - news) got a much-needed boost on Tuesday that may offset the dilution from a recent financing deal.
Buoyed by bargain hunters and a strong showing for technology stocks the stock added about 20 percent on the Toronto Stock Exchange, gaining 72 Canadian cents to C$4.52.
On Nasdaq, the issue was unchanged at 3-1/16 after earlier declines as the exchange reopened after a market holiday on Monday.
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Ottawa-based Corel also announced on Tuesday a licensing deal for a Linux version of its WordPerfect 8 software, extending a November agreement with personal computer manufacturer PC Chips. Under the agreement with PC Chips affiliate Linux Technology Ltd., Corel software will be included on two Internet appliance products Linux Technology is developing.
Financial terms of the deal were not disclosed.
Stock gains on Tuesday softened blows from a market thrashing on Friday and Monday as worried investors tried to gauge if the structure of a financing deal would weaken their holdings.
Under that agreement, valued at C$15 million with an option for a further C$15 million, the number of shares Canaccord Capital Corp. will receive is based on 90 percent of the average value of Corel stock over four days of trade ending on Wednesday. As Corel's stock drops, so the number of shares Canaccord receives increases.
``Until the fourth day ends, you won't know what the dilution is on the stock,'' said David Wright, technology analyst at BMO Nesbitt Burns Inc.
``When you don't know how much dilution is going to be there then that's going to have a negative impact on the stock price...based on the unemotional, mathematical calculation the stock reacted rationally.''
Corel shares, trading at C$5.70 on the Toronto Exchange before the financing deal was announced late on Thursday, slipped to a new 52-week low of C$3.72 on Tuesday before rebounding to close at C$3.80.
The three-day average trading price is presently C$4.27.
The deal, which analysts said is unusual, also includes a provision for Canaccord to receive an additional half share if the final prospectus is not filed 10 business days after the preliminary filing.
``There is a 50 percent warrant penalty on this -- the normal number is 10 percent,'' said Duncan Stewart, a Tera Capital Corp. partner who has previously held Corel stock in technology funds he manages. Stewart does not presently hold Corel stock and has no short or long positions on the share.
``It's unusual and I suppose that the only justification for an unusual deal must be an unusual situation,'' Stewart said.
Corel faces a cash crunch after an aborted merger with California software developer Inprise/Borland Corp. (NasdaqNM:INPR - news) on May 16.
With financing now in place, Corel is expected to announce within weeks details of a plan to cut $40 million from annual expenses, which could mean hundreds of layoffs. |
