Canadian software developer Corel is expected to sell the majority of its Linux division today to a privately held start-up, a move that would end its commitment to developing the Linux desktop operating system software.
A source close to the negotiations told Reuters yesterday that a newly formed company called Xandros will pay $2 million for the Linux unit, a division that comprised about 14% of Corel`s total business as of January 2001.
Linux, created 10 years ago this month by Finnish computer programming student Linus Torvalds, has become a popular software system used to run Web sites and is seen as a rival to Microsoft Windows, the dominant software used in personal computers.
Speculation as to the buyer of Corel`s Linux division has circulated in media reports since last January when Corel`s new chief executive Derek Burney said the division could weigh down Corel`s growth. Earlier reports placed the unit`s value at $5 million.
"The desktop division has the potential to hinder the company`s growth and needs to be spun off and allowed to expand outside the company," said Burney on 23 January.
"At this time there is nothing new to report," said a Corel spokesman, who reiterated that Corel is still looking to shed its Linux distribution business, which does not include software applications based on Linux.
Shares of Corel were up 8 cents at $3.66 on Nasdaq yesterday afternoon. In Toronto the shares were up 16 Canadian cents at C$5.67. The stock has traded in a range of $1.40 to $4 on Nasdaq since June 2000, following a steady descent from a Linux-inspired high of $39.25 in December 1999.
The sale of the unit would enable Corel to focus on its graphics software business, which it recently beefed-up with the acquisitions of Softquad Software and technical illustration firm Micrografx. Also, Corel would likely continue to sell Linux versions of its WordPerfect Office and CorelDraw software products, said the source.
"Corel is selling it (the Linux division) because of the change in leadership. The former chief executive thought it was the future of the company but Burney thought they were putting more money into it than they needed to," said a source who wished to remain anonymous.
Corel is expected to retain an ownership stake in the Linux unit of about 5%, with Xandros paying cash for the remaining 95%. Xandros is controlled by Linux Global Partners, a small New York-based holding company with stakes in a handful of Linux start-up companies.
Corel`s Linux division will continue to be based in Canada with the core of engineers that helped create the unit staying on as employees, said the source.
The Linux operating system has garnered a strong following in the programming community because it makes its underlying code freely available for programmers to use and improve, in marked contrast to closely guarded proprietary software systems such as Microsoft`s.
It is estimated by PC Data that Corel`s Linux division sells about 25% of all Linux operating systems for desktop computers, second only to Red Hat.
Corel made a decision not to enter into a head to head battle with Microsoft in the business of word processing software after accepting a $135 million investment from the software giant in 2000.
Microsoft`s .NET technology is expected to be embedded in Corel`s product line six months after it is released, sometime later this year.
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