Microsoft is selling its stake in Corel at a loss of over $100 million - just two and-a-half years after making the investment.

Venture capital firm Vector Holdings is acquiring Microsoft's holding in Corel for around $12.9 million. Microsoft spent $135 million on the stake. Vector Holdings becomes Corel's largest shareholder as a result, and saving the company from closing.

Corel CEO Derek Burney said: "We welcome this significant investment in Corel by Vector. The company is demonstrating its confidence in Corel's strong business fundamentals and potential for growth." Corel's stock currently stands at 73 cents per share.

Microsoft's investment in Corel was made so the companies could develop applications based on Microsoft's .Net initiative. The money helped bring Corel back to profitability in the first three quarters of 2001. However, despite restructuring efforts, the company continued to struggle in 2001's fourth quarter and throughout 2002.

Discussing Microsoft's investment in Corel last year, Burney told Macworld: "The cultural shift was really one in which we no longer looked at Microsoft as the enemy, but as the environment. With that attitude-change, Microsoft became a strong partner of ours. Which is why we are looking at getting our products to .Net."

Burney has described 2002 as a "transitional" year. The company has established business sales forces in several key territories and has managed to increase its European sales by 30 per cent.

"We begin 2003 with a strong cash position, no long-term debt and a clean balance sheet, having written off goodwill and a significant portion of our acquired technologies," he said.

Following news of Microsoft's divestiture of its investment, Corel spokeswoman Anne Vis told the Canadian Press: "Vector see Corel as a strong investment.

"Vector has solid expertise in the markets we are serving and they've got strong relationships with industry partners. They've indicated willingness to give us access to that pool of resources."