No Merger: Corel and Borland/Inprise call it off

by Doc Searls

In fact, the whole thing started sinking in March, when Corel released its quarterly financials, with a loss of $12.4 million, or 19 cents a share, on sales of $44.1 million, along with warnings of probable losses over the next two quarters. Then, in a later securities filing, Corel said it would face a cash shortage in the next three months if the merger didn't proceed or if other sources of financing didn't appear. In that same month, Robert Coates, chief executive of investment company Management Insights, resigned from the Inprise/Borland board in protest over the merger.

And then there was the stock market. The deal was structured as a Corel purchase, to be paid entirely in Corel (CORL) stock. That stock was worth about $20/share at the time the deal was struck. At NASDAQ's close yesterday, the stock was worth $5.41, reducing the value of the deal by more than 70%, from $1.07 billion to just $290.5 million. Inprise/Borland's stock (INPR) has fallen as well, but not from the same altitude. Inprise/Borland stock was valued at about $13/share at the time of the deal. Yesterday it closed at $5.84.

The official word from Corel was this: "Because of significant changes since the merger was agreed to more than three months ago, Corel has concluded that it is in its best interest to terminate the agreement at this time." Inprise/Borland's press statement added nothing substantive. But in a conversation this afternoon, Dale Fuller, Inprise/Borland interim president and CEO, was frank about the matter.

"The thing turned into a boat anchor, and we're glad it's over and we can move on," Fuller said. Asked what killed a promising merger, Fuller replied, "I see three things that put the nails in the coffin for this deal. First, Corel missed their first-quarter numbers dramatically. Second, they announced that their next two quarters would be similar, which only made the problem worse. Third, they announced that they would be out of money in three months. And we saw no plan to do anything about it, except ride the wave down. Credibility and confidence derive from planning and execution. We weren't seeing that, and the stockholders weren't seeing that." The decision to call the deal off, however, was "a completely mutual decision," he added.

Fuller still has kind words for Corel. "I think their products are very good, and the strategy of combining their products with ours was very good; but I think that strategy can go forward with all the other players anyway. We have a number of other players who want to work with us."

One investor, who spoke under anonymity, offered a grim outlook for Corel. "I think Corel's strategy has been to look for stock market reward rather than a long-term strategy. There isn't any institutional following on Corel's stock, so they play to the retail investors. Those people reacted enthusiastically to the news, but in fact the company is closer to bankruptcy. They had projections for Inprise that were wildly off - frankly because I think they didn't know what they were doing. They're clearly not a well-organized company. A bank won't lend them money. There is only very diluted financing available, so they're going to have to issue a lot of stock. And where are they going to find $40 million in cost savings? That's a huge chunk of what they spend in a year. They do have products that should survive, but the company just isn't that well-managed. On the other hand, Inprise has a lot of cash and a lot of NOLs - Net Operating Losses - that are very useful in the future."


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