Corel, MS forge strategic alliance

TORONTO: Corel Corp., which once tried to go toe to toe with Microsoft Corp.,

announced an alliance on Monday with the world's largest software company in a

deal worth $135 million.

Ottawa-based Corel said that Microsoft will purchase 24 million of its

non-voting convertible preferred shares at $5.625 a share for a total of $135

million.

Corel shares closed at C $5.55 on the Toronto Stock Exchange on Monday.

Microsoft was off $1-3/16 at $59-1/8 on Nasdaq. The announcement came after the

market's close.

Corel and Microsoft will work together in testing, developing and marketing

of Microsoft's .NET platform and will work with the software giant on product

launches, trade show events and mutual Web sites.

Microsoft's .NET initiative, unveiled this past summer, is expected to drive

a new wave of Internet activity by enabling a wide variety of devices and

services to easily swap information.

The alliance would see Corel products like CorelDraw and WordPerfect, and

even the Linux operating system–a computer operating system that supporters

claim is superior to Microsoft's Windows–become available on the .NET

platform. However, the companies provided little specifics.

"The details of each of those products in terms of how they will be

.NETted, to use that term, will be coming out shortly. This isn't something

we're prepared to talk about at this time," said Corel's interim chief

executive Derek Burney.

"Suffice to say as the world moves more towards the Web, these are the

services that we plan on using. To the extent we do, that will just come out as

time moves on."

Microsoft developer division general manager Tom Button said the premium put

on Corel made it "a very reasonable buy."

"Especially when you consider Corel and what an attractive valuation it

currently carries anyway. Plus the aspect of the change in strategy that Corel

is undergoing, we think makes it a very promising company, going forward,"

he said, adding he approached Corel once Burney took over from former chief

executive Michael Cowpland.

Button said Microsoft would have no control over the company, no seats on the

board and no involvement in its management, but was interested only in Corel's

research capabilities and applications.

Corel's alliance with a former rival - the company got burned in 1997 after

it bought WordPerfect and pitted it against Microsoft's Word software, a fight

that left Corel bloodied and battered - comes during a struggle-filled year for

the firm and less than two months after founder Cowpland quit Corel.

In the joint press release, the companies said that they had agreed "to

settle certain legal issues between Corel and Microsoft" but were testy on

explaining what the line was in reference to during the conference call.

"This is about putting the past in the past and moving forward in our

strategic direction, which has the Web written all over it," Burney said,

adding Corel had not started any legal proceedings against Microsoft.

Corel, which was best known for its WordPerfect and CorelDraw graphics

software until last year's leap into the Linux market, has been grappling with a

cash crunch and stalled sales for its older product lines.

The company, which landed some much needed financing in September, will gain

access to the cash immediately.

"Obviously this puts an end to any concerns people may have. It's

something we'll be using as we move forward on the .NET framework as well as the

current applications we have."

Corel's Burney said the company would announce its new executive structure

shortly.

(C) Reuters Limited 2000.