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Corel warns of cash-flow crises if Inprise merger fails

'May occur' is not the same thing as 'will occur'

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Corel admits it could run out of cash within 90 days. The company told the Canadian Securities and Exchange Commission on Friday that unless its planned merger with Inprise/Borland goes ahead, its financial results fail to improve or other sources of finance are not secured, "a cash deficiency may occur within the next three months". Corel's statement isn't likely to encourage investors, and with a major boost to its revenue not too probable either - Corel has already warned shareholders that it will post a loss this quarter, having done so last time, too - the company is clearly pinning its hopes on the Inprise merger going ahead. However, the key word in Corel's statement is 'may' - not, you'll note, 'will'. The company has set up a scenario - the Inprise merger is called off - and highlighted a possible outcome, but as the company' cautious language suggests, it's not the only possible outcome. That suggests there's some spin going on here. Cash-flow crises are not normally events companies want to discuss, but Corel seems to have been remarkably open about it. The problem for Corel is that a vociferous number of Inprise shareholders are radically opposed to the merger. Since the deal was announced - and largely thanks to Corel's poor financial performance - the value of Corel stock Inprise shareholders will get if the merger goes ahead have fallen dramatically. The merger was to have been worth around $1.1 billion, but now its less than half that figure. Inprise shareholders want the merger terms renegotiated. Corel isn't keen to do so. Corel stands to win not only Inprise's product line but a $197 million pot of cash if the merger goes ahead, and with its current financial committments - which include $5.19 million in payments to shareholders who sued the company over a previous share price fall back in 1997 - it certainly needs the money. Six months ago, the company was winning sales of $71.3 million, since then its sales have fallen 38 per cent to $44.1 million, and there's no real sign of a turnaround, not least since its key Linux products can be downloaded for nothing. Shareholders will vote on the merger this summer, assuming it gets that far. Last week, a former Inprise director and major shareholder asked a US court to block it. Of course, if the merger fails to complete, Corel could still come out a winner. The terms of agreement between the two companies allow for a $29.5 million penalty payment to Corel, if Inprise pulls out. That said, Corel will have to cough up $44.5 million if it terminates the agreement. ® Related Stories Inprise lawyers seek to block opposition to Corel merger Corel Q1 disappoints

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