THE INDUSTRY STANDARD MAGAZINE
A Rumor Electrifies Corel's Stock
Nov 30 1999 12:00 AM PST
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Like a live wire, a rumor linked for a day the stocks of two companies based in North Carolina and in Ottawa. The local papers on each end turned in some electrifying coverage.
The stock of the Durham, N.C.-based Linux-software firm called Red Hat has been enjoying a wild ride, zooming over the past four trading sessions on enthusiasm over all things Linux. Yesterday the frenzy carried Ottawa's Corel (CORL) Software along with it. Last Friday Interactive Week had speculated that with a market cap north of $10 billion, Red Hat was ready to go on a tear acquiring Linux-related companies. Corel, which at Comdex had announced a desktop Linux system, was mentioned as one possible target. The rumor was picked up Monday by CNN and CNBC, and buoyed by comments from a fund manager that such a combination might make sense. Red Hat closed Monday up 98 percent on the day, Corel up 48 percent. Both companies denied that they had ever discussed anything, least of all an acquisition. The Wall Street Journal ran bylined copy from the Dow Jones Newswires. It was the only coverage to dampen the takeover speculation with mention of the two-year-old insider-trading charges pending against Corel founder and CEO Michael Cowpland. The New York Times and the San Jose Mercury News went with a Reuters story that mentioned Corel's turnover Monday of 57.6 million shares - just short of the company's 62-million-share market float. Reuters quoted an unnamed institutional trader on the furious activity: "It's just retail guys." Red Hat's hometown paper, the Raleigh News & Observer, pointed out that the $1.6 billion jump in Red Hat's valuation on Monday exceeded Corel's entire market capitalization. The Ottawa Business Journal noted that the stocks of Corel and Red Hat had never been linked before and speculated that U.S. markets may come to see the two companies as representative of the Linux sector as a whole. The irony of Red Hat's stratospheric valuation compared to Corel's caught the eye of Ottawa Citizen reporter James Bagnall. The Durham company is losing money, and it posted less than $5 million in sales last quarter; Corel is profitable and generates $70 million a quarter. The Ottawa Sun (SUNW)'s Kevin Bell found several people inside Corel dazed and confused by the sudden stock run-up, and noted that a blackout period forbids them from profiting immediately. The paper was guilty of some sloppiness, at one point saying that "Linux" has been snapping up companies when they meant Red Hat. But hats off to Bell for cornering the fund manager whose nod had initially electrified Corel's stock. Asked about the rumor, Tera (dossier) Capital partner Duncan Stewart sputtered, "All I said was that the bloody thing wasn't necessarily ridiculous." - K.D.
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