Spin-Off Xandros To Take Over Corel's Linux Business

Newly formed Xandros, seeded with a $10 million investment by New York-based Linux Global Partners, is expected to say that it has signed a licensing agreement with Corel that gives it access to Corel's Linux desktop OS and related technologies.

The company plans to release a new Linux OS distribution in the near future, according to a brief statement issued Wednesday morning.

Xandros, which like Corel will be based on Ottawa, will develop Linux desktop and server products, says a spokeswoman for Xandros. The majority of Corel engineers working on Linux products will move over to Xandros, she says.

Under the terms of the deal, Corel will receive an undisclosed amount of cash along with a 5 percent equity stake in Xandros and a 2 percent equity stake in Linux Global Partners, according to the statement. Xandros will have unlimited rights to the Corel Linux desktop OS and related technologies for a period of 18 months.

Corel, which had made a name for itself in Windows with Corel Draw and WordPerfect Office, embarked on a high-profile Linux quest a few years ago under then-CEO Michael Cowpland. But instead of concentrating on its applications expertise, Corel also decided to do its own Linux operating system distribution, ensuring that the other major distributions such as Red Hat and Caldera would not be interested in pushing Corel applications.

In January, the company said it would pull back on its Linux efforts, a move that some say was motivated by Microsoft's $135 million investment in the company late last year.

Corel has been very active of late. On Aug. 7, it closed a stock deal worth about $37 million to buy SoftQuad Software and its XML expertise. A month earlier, it said it would acquire Micrografx, a Richardson, Texas, maker of technical illustration software, in a $32 million stock deal. Corel CEO Derek Burney now says the company wants to leverage past acquisitions, including Ventura Software, pouring them into a publishing product for creating both Web and print content.

The company's moves have some analysts shaking their head. "It looks like Corel is desperately looking for a business to be in," says Jeff Tarter, editor of SoftLetter, a Watertown, Mass.-based industry newsletter.

The company has seen its bread-and-butter desktop application business severely challenged by the Microsoft Office monolith and now needs to find something else to do, many observers say.