Corel argues going-private offer is necessary to inject money on a timely basis, avert default

Corel says takeover needed to prevent collapse

OTTAWA — Corel Corp., the maker of WordPerfect and other software, on Monday justified an offer to take the company private, saying that complete ownership is necessary to inject capital quickly and avert a default on its loans.

In an amended filing with the Securities and Exchange Commission, Corel said that its majority investor, Vector Capital, is moving to acquire the 32 percent of shares it doesn’t already own to prevent a credit default by Nov. 30.

The company is required to keep its total debt level below 2.75 times its trailing 12-month earnings before interest, taxes, depreciation and amortization, but it expects to fail that test this month.

It can prepay $15 million in principal, dropping its debt ratio to 2.64, but that would result in cash on hand falling to $8.6 million, below what it considers sufficient working capital to support the business.

Vector Capital also said it is unwilling to see existing shareholders’ stakes diluted, which would happen if an equity investment was sought from outside parties.

“Vector believes that if it is going to commit new equity financing to the company using funds from its limited partners under present circumstances, it will need the operational and strategic control of the company that can only come with total ownership in order to safeguard that investment,” Corel said in the filing.

Two weeks ago, Vector increased the price at which it wants to buy the company to $4 per share, from $3.50. Corel’s board said at the time that it is evaluating the revised offer.

In March 2008, Vector Capital offered to buy the company for $11 per share. But it withdrew the offer five months later after the company said it would pursue alternative relationships.

In August 2008, Corel got a buyout offer from two parties for $12.50 per share, pending their due diligence. The offer was later cut to $10.50 per share and withdrawn in October 2008 as banks tightened credit due to the financial crisis.

Vector Capital got back into the picture in August 2009 and two months later made an offer to buy the rest of Corel it doesn’t already own for $3.50 per share.

Corel also develops and sells WinZip, Paint Shop image editing software and other products.

Shares of Corel, based in Ottawa, Ontario, fell 5 cents to close at $4.20 on the Nasdaq Stock Market. The price is higher than the tender offer price, suggesting that investors believe a better offer for the company is possible.