Canadian software developer Corel sold the majority of its Linux division yesterday, signing an agreement that gives privately held start-up Xandros access to its Linux desktop operating system software.
Under the agreement, Corel will receive an undisclosed amount of cash and a 5% equity stake in Xandros and a 2% equity stake in Xandros`s founding parent, Linux Global Partners.
Xandros said it has secured a $10 million capital commitment from New York-based Linux Global Partners, a Linux-specific investment company with financial holdings in several desktop application companies.
A source close to the negotiations told Reuters on Tuesday that Xandros would pay $2 million for the Linux unit, a division that Corel says comprised about 1-1/2% of Corel`s total business as of January 2001.
The sale of the unit enables Corel to focus on its graphics software business, which it recently beefed up with the acquisition of Softquad Software and technical illustration firm Micrografx, the source said.
Shares of Corel closed down 18 cents at $3.39 on Wednesday on Nasdaq and down 30 Canadian cents at C$5.21 in Toronto. The stock has traded in a range of $1.40 to $4 on Nasdaq since June 2000, following a steady slide from a Linux-inspired high of $39.25 in December 1999.
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 broke from previous strategy that had called the Linux division the future of the company, and instead said the division could weigh down Corel`s growth.
"We believe this decision is in the best interests of customers and shareholders since it allows Xandros to carry the technology forward and, in turn, allows Corel to maintain its singular focus on an aggressive new growth strategy," Rene Schmidt, chief technology officer at Corel, said in a statement.
The new Linux division will continue to be based in Canada with the core of engineers that helped create the unit staying on as employees.
Xandros president Michael Bego said in a statement that he sees his company as a viable alternative to the Windows operating system.
Bego added that this "marks the first end-to-end Linux desktop that will better meet the needs of its current users as well as potential users."
The first release of Xandros`s desktop will come in early 2002.
Linux, created 10 years ago this month by Finnish computer programming student Linus Torvalds, has become a popular software system to run Web sites and is seen as a rival to Microsoft Windows, the dominant software used in personal computers.
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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Corel to sell Linux operating system unit
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