Corel Corporation (NASDAQ:CREL; TSX:CRE) today filed a
Solicitation/Recommendation Statement on Schedule 14D-9 announcing
that the directors mandated by its Board of Directors to act as the
Board have unanimously determined to recommend, on behalf of the
Corel Corporation (the “Company”), that shareholders tender their
shares of the Company’s common stock, no par value per share
(“Shares”) pursuant to the tender offer (the “Offer”) commenced on
October 28, 2009 by Corel Holdings, L.P. (together with its
affiliates, “Vector”).
Under the terms of its tender offer, Vector is seeking to
acquire, subject to certain conditions, all of the outstanding
Shares not owned by it for $(U.S.)4.00 per share in cash (the
“Offer Price”). Vector owns approximately 67% of the Company’s
outstanding Shares on a fully-diluted basis.
Supportive Factors
In reaching their determination, the Board considered numerous
factors, including the following material factors which the Board
believe support their decision:
Opinion of Financial Advisor. Genuity Capital Markets was
retained to assess the Offer and to provide advice to the Board in
connection with the Offer. The Board considered its discussions
with, and the analysis of, its independent financial advisor,
Genuity Capital Markets, and Genuity Capital Markets’ written
opinion that, as of November 15, 2009 and based upon and subject to
the assumptions, qualifications and limitations set forth in its
written opinion, that the consideration proposed to be paid to the
holders of Shares (other than Vector and its affiliates) pursuant
to the Offer is fair, from a financial point of view, to such
holders. The full text of the written opinion of Genuity Capital
Markets, dated November 15, which sets forth assumptions made,
procedures followed, matters considered and qualifications and
limitations on the scope of the review undertaken in rendering the
opinion is attached as Annex 1 to the Schedule 14D-9. You are urged
to read the opinion carefully and in its entirety for a description
of the assumptions made, procedures followed, matters considered
and qualifications and limitations on the scope of the review
undertaken in rendering the opinion.
The opinion addresses only the adequacy of the consideration
offered under the Offer from a financial point of view and is
directed to the Board. The description and the opinion do not
constitute a recommendation to any shareholder as to whether they
should tender their Shares to Vector pursuant to the Offer.
Further discussion of the written opinion of Genuity Capital
Markets and the report it provided to the Board on November 15,
2009, is contained under the caption “Opinion of Financial Advisor
to the Designated Directors of the Board of Directors of Corel” in
the Schedule 14D-9. The Board considered all of the factors,
analyses and conclusions of its financial advisor described under
the caption “Opinion of Financial Advisor to the Designated
Directors of the Board of Directors of Corel” in the Schedule
14D-9.
Premium. The Offer represents a premium of 27.8% to the closing
price of the Shares on October 28, 2009, the trading day
immediately preceding the announcement of the original Offer, and a
premium of 33.8% to the 20-day volume weighted average price of the
Shares in each case notwithstanding that Vector controlled
approximately 68.3% of the issued and outstanding Shares. In
addition, the Offer Price will be paid entirely in cash, which
provides certainty of value.
Realize Immediate Value. The all-cash consideration offered in
the Offer permits the shareholders to immediately realize a fair
price without incurring the inherent risks of the Company’s
business including, among others, competitive threats, potential
claims from third parties and the recent disruption in the overall
economy and financial and credit markets.
Unlikelihood of an Alternative Value Maximizing Transaction.
Vector beneficially owns approximately 68.3% of the issued and
outstanding Shares through which it has the power to elect the
board of directors. Vector therefore has the power to direct the
Company’s policies, including any decision to merge or sell the
Company. As a result, no alternative value maximizing transaction
can occur without Vector’s cooperation and consent. Vector has
informed the Company that it is not considering a sale of its
Shares to any third party and that, in its view, no transaction
other than an acquisition of the Company by Vector would be
appropriate or successful. Accordingly, there is no reasonable
prospect of an alternative transaction being available to the
minority shareholders. As a result, it was the view of the Board
that maintaining the Company as a publicly traded company likely
meant that shareholders could only reasonably expect to realize
trading values for their Shares that were likely to be
significantly less than the Offer Price in the near term and
possibly longer.
Business, Economic and Market Conditions. The Board considered
information concerning the business, operations, assets and
financial condition of the Company as well as its historical
operating results and its future prospects. The Board also
considered current industry, economic and market conditions and
trends potentially affecting the Company.
Liquidity. The Board have taken into account the historical
market prices and trading information of the Shares on the Toronto
Stock Exchange and the NASDAQ, including the lack of liquidity for
shareholders and the risk of further price erosion. The Board have
also considered the significant deterioration in the financial
markets, which has had a number of consequences, including creating
a larger disparity between current trading prices of equity
securities and the potential long-term values of equity securities,
creating a larger disparity between current multiples of equity
securities and historical multiples and making financial metrics
from periods prior to the financial crisis beginning in the fourth
quarter of 2008 less relevant to current analyses.
Likelihood of Completion. Vector’s obligation to complete the
Offer is subject to a limited number of conditions that the Board
believes are reasonable under the circumstances. Moreover, Vector,
which was founded in 1997, is a respected value investor in
established technology businesses and currently manages over $2
billion in equity capital. In light of the foregoing, the Board
believe that the transaction is likely to be completed in
accordance with its terms and within a reasonable time.
Debt Considerations. The Company is subject to restrictive
covenants under its credit facility that impose operating and
financial restrictions on the Company. As a result of certain
one-time charges expected to be incurred during the Company's first
fiscal quarter in 2010, the Company currently anticipates it will
not be in compliance with the total leverage debt covenant under
the credit facility at the end of the Company's first fiscal
quarter in 2010. The Company has explored modifying the definitions
of such covenant tests to exclude certain one time charges from the
calculation, but has determined the costs associated with any
changes to the existing credit facility or refinancing to be
prohibitive. Therefore, the Company expects that within 45 days
following the end of its first fiscal quarter in 2010, it will
likely need to effect an "equity cure" under such credit facility.
The equity cure provision of the credit facility agreement provides
for the Company to apply the proceeds from an equity offering
(within certain limitations as fully described in the credit
facility agreements) directly towards EBITDA (as defined in such
credit facility agreements) for the period for the purpose of
calculating the total leverage test. Although the Company currently
believes that the ability to apply an equity cure in an amount
between $5 million and $10 million within 45 days of the end of the
Company’s first fiscal quarter in 2010 will be available to the
Company and would be sufficient to prevent the Company from
violating the total leverage covenant test at the end of the
Company’s first fiscal quarter in 2010, the ability of the Company
to do so is uncertain. If the Company cannot effect an equity cure
on terms that are reasonable or at all, this may have an adverse
effect on the Company. The issuance of equity securities necessary
to raise this capital could result in substantial dilution to the
Company’s existing stockholders.
Tender Offer Structure. The Board took into account the
structure of the transaction as a tender offer, particularly the
Minimum Tender Condition (as defined below) and Vector's statement
of intention to acquire non-tendered Shares for consideration per
Share in cash equal to the Offer Price pursuant to any compulsory
acquisition or subsequent acquisition transaction.
Potentially Negative Factors
The Board also considered a variety of risks and other
potentially negative factors concerning the Offer, including the
following:
- the fact that Vector's interest
in acquiring the Shares for a lower price is contrary to the
financial interest of the minority shareholders in selling their
Shares for a higher price and that the Offer Price may not
necessarily ascribe full value to potential future improvements in
revenues that may result from improvement in the economy, and the
Offer Price might have been higher if it took into account a more
robust improvement of the economy or if Vector undertook the Offer
at a later date;
- the fact that, in the Company's
initial public offering in April 2006, Shares were sold at a price
of $16.00 and, until December 2008, traded at prices higher than
the Offer Price;
- the fact that many shareholders
purchased their Shares at prices in excess of the Offer Price;
and
- The Board note that Vector has
indicated in an exhibit to its Tender Offer Statement that, as a
private company, the Company will have a far wider range of options
available in order to surmount its present difficulties and the
Company will be in a stronger position to execute its business
plan, mergers and acquisitions and divestitures, and that the
minority shareholders will not have an opportunity to participate
in these benefits.
Procedural Fairness
The Board recognized from the outset that they lacked the
authority to block the Offer and that Vector was not bound to react
or modify its Offer in any way in response to the Board'
determinations with respect to the Offer. The Board believe,
however, that Vector nonetheless engaged the Board in extensive and
serious negotiations which ultimately resulted in the increase in
the Offer Price to a price reflecting a 19.4% increase over the
$3.35 per Share price indicated by Vector on October 23, 2009 and a
14.3% increase over the $3.50 per Share price offered to
shareholders on October 28, 2009. In addition, the Board believe
that the Offer is procedurally fair to the minority shareholders
based on the following factors:
- providing for the Board, who are
not affiliated with Vector and believe that they have interests
that are aligned with the interests of the minority shareholders
and opposed to Vector's interests, to consider the Offer on behalf
of the Company;
- allowing the Board time to
analyze the Offer with the assistance of the Board' independent
legal and financial advisors, selected and engaged directly by the
Board;
- the Offer being conditioned upon
there being validly tendered and not withdrawn on or prior to the
expiration of the Offer a number of Shares representing at least a
majority of the aggregate number of outstanding Shares (calculated
on a fully-diluted basis as of the date the Shares are accepted for
payment pursuant to the Offer) not beneficially owned by Vector and
the votes attaching to which shall be qualified to be included as
votes in favor of any subsequent acquisition transaction in
determining whether minority approval (as construed under
applicable Canadian securities law) has been obtained in respect
thereof (the “Minimum Tender Condition”);
- the tender offer structure that
allows each of the Company’s shareholders to be able to decide
voluntarily whether or not to tender such shareholder’s Shares in
the Offer; and
- that minority shareholders who
not tender their Shares in the Offer will have the right under a
second-step acquisition to dissent and demand payment of the fair
value of their Shares.
The foregoing discussion of the factors reviewed by the Board is
not intended to be exhaustive. In view of the wide variety of
factors considered in connection with their evaluation of the
Offer, the Board did not find it practicable to, and therefore did
not, quantify or otherwise assign relative weight to specific
factors or methodologies in reaching their conclusions. In
addition, individual Board may have given different weight to
different factors.
The Board considered the possibility that, if the Offer is
withdrawn, the market trading price of the Shares may decline from
current levels, because of current stock market conditions and
other factors. There can be no assurance that the trading price of
the Shares will not decline if the Offer is withdrawn.
The Schedule 14D-9 contains a detailed description of the
factors considered by the Board and other important information
relating to the recommendation. We urge you to read the Schedule
14D-9 and any amendments thereto carefully and in their entirety so
that you will be fully informed as to the Board’s
recommendation.
Shareholders should consider the Offer carefully and come to
their own conclusions as to acceptance or rejection of the Offer.
Shareholders who are in doubt as to how to respond should consult
with their own investment dealer, stockbroker, bank manager,
accountant, lawyer or other professional advisor. Shareholders are
advised that acceptance of the Offer may have tax consequences and
that they should consult their tax advisors.
The directors mandated to act as the Board with respect to this
matter are Daniel T. Ciporin, Steven Cohen and Barry A. Tissenbaum.
The Board has retained Genuity Capital Markets as its financial
advisor and Bennett Jones LLP and Kaye Scholer LLP as its legal
advisors. Corel has retained Woodside Counsel, P.C. as U.S.
counsel, and Bennett Jones LLP, as Canadian legal counsel.
About Corel
Corel is one of the world’s top software companies with more
than 100 million active users in over 75 countries. We develop
software that helps people express their ideas and share their
stories in more exciting, creative and persuasive ways. Through the
years, we’ve built a reputation for delivering innovative, trusted
products that are easy to learn and use, helping people achieve new
levels of productivity. The industry has responded with hundreds of
awards for software innovation, design and value.
Our award-winning product portfolio includes some of the world’s
most widely recognized and popular software brands, including
CorelDRAW(R) Graphics Suite, Corel(R) Painter(TM), Corel
DESIGNER(R) Technical Suite, Corel(R) Paint Shop Pro(R) Photo,
Corel(R) VideoStudio(R), Corel(R) WinDVD(R), Corel(R)
WordPerfect(R) Office, WinZip(R), and the recently released
Corel(R) Digital Studio(TM) 2010. Our global headquarters are in
Ottawa, Canada, with major offices in the United States, United
Kingdom, Germany, China, Taiwan and Japan.
Forward Looking Statements:
This release includes forward-looking statements which are based
on estimates and assumptions made by us in light of our experience
and our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe
are appropriate in the circumstances including but not limited to
general economic conditions, product pricing levels and competitive
intensity, and new product introductions.
Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause actual
results, performance or achievements to differ materially from any
future results, performance, or achievements discussed or implied
by such forward-looking statements. Such risks include the recent
disruption in the overall economy and financial and credit markets,
which may adversely impact our operations and financial results as
well as our ability to obtain financing required to grow our
business and make acquisitions. We may experience fluctuations in
our operating results depending on the timing and success of
product releases. Our core products have been marketed for many
years and the packaged software market in North America and Europe
is relatively mature and characterized by modest growth.
Accordingly, we must successfully complete acquisitions, penetrate
new markets, establish relationships with new original equipment
manufacturer customers, or increase penetration of our installed
base to achieve revenue growth. The long-term trend in our business
reflects growth in revenues from acquisitions, which give rise to
their own risks and challenges, rather than from our existing
products, and that recent growth may not be representative of
future growth. We face competitive threats from well established
software companies that have significantly greater market share and
resources than us and from online services companies that are
increasingly seeking to provide software products at little or no
incremental cost to their customers to expand their Internet
presence and build consumer loyalty. We rely on a small number of
key strategic relationships for a significant percentage of our
revenue and these relationships can be modified or terminated at
any time. In addition, we face potential claims from third parties
who may hold patent and other intellectual property rights which
purport to cover various aspects of our products and from certain
of our customers who may be entitled to indemnification from us in
respect of potential claims they may receive from third parties
related to their use or distribution of our products. Any resulting
litigation costs, settlement costs or royalty requirements could
affect our profitability.
These and other risks, uncertainties and other important factors
are described in Corel’s Annual Report dated February 9, 2009,
filed with the Securities and Exchange Commission (SEC) and the
Canadian Securities Administrators (CSA) under the caption “Risk
Factors” and elsewhere. A copy of the Corel Annual Report and such
other filings can be obtained on Corel’s website, on the SEC’s
website at http://www.sec.gov./ or on the CSA’s website at
http://www.sedar.com. These factors should be considered carefully,
and readers should not place undue reliance on our forward-looking
statements. Forward-looking statements speak only as of the date of
the document in which they are made. We disclaim any intention or
undertaking to provide any updates or revisions to any
forward-looking statement to reflect any change in our expectations
or any change in events, conditions or circumstances on which the
forward-looking statement is based, except as required by law.
© 2009 Corel Corporation. All rights reserved. Corel, CorelDRAW,
Paint Shop Pro, Painter, Corel DESIGNER, VideoStudio, WordPerfect,
WinDVD, WinZip, Digital Studio, iGrafx and the Corel logo are
trademarks or registered trademarks of Corel Corporation and/or its
subsidiaries. All other product, font and company names and logos
are trademarks or registered trademarks of their respective
companies.
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