Vector Sparks Ire With Corel Control Play

Corel Corp., a portfolio company of Vector Capital, is looking for a new chief executive officer even as its shareholders appear headed for an ownership showdown with the San Francisco buyout shop.

In March, Vector Capital ingited controversy with Corel’s shareholders when it made an $11-per-share offer for the 31 percent of the Ottawa-based software company that it doesn’t already own. The bid hit a wrinkle last week when David Dobson stepped down as CEO to accept a senior executive position at an unidentified U.S.-based Fortune 500 company. Dobson in a statement did not say whether the bid by Vector Capital played into his decision.

Vector Capital, a technology-focused buyout shop, took Corel private in 2003 in a $12.8 million stock purchase. Three years later, it put the company back in the public market, and its 69 percent ownership is now worth approximately $190 million. Alexander Slusky, a managing partner at Vector Capital, and Amish Mehta, a partner at the firm, sit on Corel’s board. Vector Capital officials and representatives declined to comment, citing a mandatory quiet period.

Some shareholders and at least one equity analyst have contended the offer undervalues the company and represents an attempt to take Corel off the market before it fully realizes the value of its acquisition of InterVideo Inc. The DVD technology company’s WinDVD player is expected to benefit greatly in the second half of 2008 from Blu-Ray’s victory over HD-DVD in the format battle for high-definition DVD players.

Jeffrey Jacobowitz, a sell-side analyst with Robotti & Company LLC, urged the company’s board of directors to reject the bid, which he said offers to take Corel private for less than 7x forward earnings. Jacobowitz has recommended buying Corel shares to his clients and he is part of a partnership that owns 82,500 Corel shares. “I am quite frankly stunned at how low the bid is,” Jacobowitz wrote in a recent open letter to Corel’s board of directors.

Corel on April 14 hired investment bank Genuity Capital Markets to advise it on Vector Capital’s bid and other potential strategic options. Jacobowitz, whose letter was dated the same day the company announced it hired Genuity Capital, urged the company to stay public if it can not find a better deal. “There is simply no reason to sell the company to Vector Capital … while the minority public shareholders are shut out at a terribly inadequate price,” he wrote.—B.V.