Microsoft bails out rival Corel

But no mention of what is likely to happen with Linux under the new arrangements
Written by Mary Jo Foley, Senior Contributing Editor

Microsoft has purchased $135m (£82m) worth of stock in struggling Canadian software maker Corel, in a move characterised as a strategic alliance targeting Microsoft's .Net software development platform.

The announcement after the market closed Monday sent ripples through the open source community, but neither company was talking about what the deal could mean in terms of Linux.

Corel has a version of Linux optimised for the desktop. Corel's WordPerfect desktop suite runs on a variety of operating systems, including Linux. A number of industry watchers have been speculating for more than a year that Microsoft was interested in porting its own Office desktop suite, although Microsoft has said it currently has no such plans.

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.

In a joint conference call, executives from the two companies did not once mention the word "Linux". In response to a reporter's question about whether the deal meant that, at some point, there could be "Linux on .Net", interim Corel chief executive Derek Burney said it "just might".

The two companies offered no further elaboration on his statement. Instead, the two companies emphasised that Microsoft had invested in Corel in exchange for Corel's commitment to back Microsoft's evolving .Net development platform, which consists of a common language run-time and set of class libraries, due out next year, upon which developers will be able to write applications that work with Microsoft's forthcoming .Net products and services.

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 troubled year for the company and less than two months after founder Michael Cowpland quit the company.

The two companies declined to discuss a statement in the press release they issued, which stated that, as a result of the Microsoft investment in Corel, "both companies have agreed to settle certain legal issues between Corel and Microsoft".

Asked for clarification, Burney hinted that there were unresolved issues over Visual Basic for Applications licensing although he said Corel had not initiated any legal proceedings against Microsoft.

Tom Button, general manager of Microsoft's developer division, denied there were any outstanding legal issues and declined to comment further on the legal matter. "This signifies a start in the new era of our relationship," said Button of the Microsoft investment in Corel. "We get an ISV [independent software vendor] of the stature of Corel to target the .Net platform and services. Microsoft gets an investment in an attractively valued ISV."

Corel said it will use the Microsoft investment monies to engage in joint development and marketing programs. Corel will ".Net" its applications and products, Burney said, but offered no explanation of how or when it will do this. Last week, Corel's chief financial officer said the company was "taking steps to supplement our cash reserves... We are constantly evaluating partnership opportunities that may provide additional cash."

The deal provides for Microsoft to purchase 24 million of Corel's non-voting convertible preferred shares at $5.625 a share. Corel will gain access to the cash immediately.

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.

Reuters contributed to this report.

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