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BayStar pulling out $20m investment in SCO Group; PIPE deal falling apart?
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CommentsThe 20,000 shares are valued at about $20 million. SCO Group's stock (SCOX) ended trading Friday at $8.37, down $1.29 (13 percent) on the day.
BayStar spokesman Bob McGrath told NewsForge Friday afternoon that the company had "no comment" at this time. "No words, other than 'no comment,'" he said.
Royal Bank looking at its options
Spokesman Paul Wilson of the Royal Bank of Canada, which funded the remaining $30 million of the private investment in public equity (PIPE) deal, said the bank "has not yet requested a redemption, but we are reviewing the investment and will arrive at a decision shortly."
Melanie Hollands, OSDN's IT stock analyst, told NewsForge that "it is possible that the (whole) PIPE deal is about to fall apart. ... I certainly think that Royal Bank of Canada may have cause to ask for a cash redemption Monday or soon."
In the letter, dated April 15, BayStar contended that the Lindon, Utah-based SCO Group has violated specific sections of the exchange agreement between the two filed with the Securities and Exchange Commission on Feb. 5. The sections are 2(b)(v), 2(b)(viii), 2(b)(viii) and 3(g), which spell out mandates of the original purchase agreement, issues involving disclosure, and how that information is publicly filed. In other words, BayStar is implying -- but not stating directly -- that SCO Group hadn't told BayStar everything it needed to know in advance of the deal.
"BayStar's letter did not provide specific information regarding SCO's alleged breaches of the Exchange Agreement," SCO Group spokesman Blake Stowell said in a statement. "SCO is attempting to obtain specific information from BayStar and is evaluating its obligations and options with respect to the redemption notice."
"However, SCO does not believe it has breached any of the referenced provisions of the Exchange Agreement. As a result, SCO does not believe it is obligated to redeem BayStar's shares of Series A-1 Convertible Preferred Stock."
Stowell told NewsForge: "We're puzzled at what this is about. We believe we have been completely forthright in our disclosures to BayStar all along."
Stowell said that no substantial conversation with Royal Bank of Canada has taken place about the BayStar letter. "Because this was a material filing, we were obligated to disclose that to the bank, which we did," Stowell said. No further communication took place, he said.
"We believe this (situation) is limited to BayStar, and BayStar only," Stowell said.
Because SCO Group is, at least at the outset, refusing to redeem the 20,000 shares, BayStar will have to make the next move. A court order is possible.
BayStar, a privately held investment firm, funded $20 million and Royal Bank of Canada the remaining $30 million in the package to SCO Group in October, keeping the wobbly Unix company above water. Later, BayStar changed the arrangements of the deal in a separate SEC filing.
How Microsoft is tied in
Last month, BayStar confirmed that several highly placed Microsoft executives initiated the idea of the PIPE fund transfer to SCO Group. Chairman Bill Gates and CEO Steve Ballmer were not among those executives, McGrath said.
The admission was additional evidence of an alleged Microsoft-SCO Group cash pipeline for many members of the open source community, who believe Microsoft is quietly backing SCO in its many lawsuits against companies that use Unix and Linux in their enterprise IT systems. SCO Group is suing a number of companies, including IBM, Novell, DaimlerChrysler, AutoZone, and others for allegedly using its proprietary Unix System V code in open source Linux IT systems.
The most credible evidence of Microsoft's involvement thus far is a memo from a former SCO Group contractor, Mike Anderer, who described details of the transaction to SCO Group executive Chris Sontag in what later became the "Halloween X" document after being leaked to open source community leader Eric S. Raymond on March 3.
"I look at this as bad news for SCO," Dion Cornett, an analyst for Decatur Jones Equity Partners-Soleil told TheStreet.com. "I don't think BayStar is going to be very successful in getting their money back. It's very difficult for a private equity investor to force a redemption on a company that doesn't want to redeem. But it makes it very difficult for SCO to raise future financing."
SCO needs plenty of cash to keep litigating
SCO has been spending a high percentage of its resources on researching, filing, and enacting litigation against corporations such as IBM -- many of which are former or current customers. SCO Group is seeking $5 billion from IBM for alleged intellectual property and licensing violations.
"SCO will certainly need lots of money if it wants to fight the likes of massive IBM," Cornett told TheStreet.com. "I think they'll need all the $65 million they have in the bank to fund this fight. This is going to be a multi-year, very protracted lawsuit, if it's not dismissed."
Editor's note: For a closer look at the investment implications of the BayStar move, see a more detailed version of this story at IT Manager's Journal.
Comments
on BayStar pulling out $20m investment in SCO Group; PIPE deal falling apart?Note: Comments are owned by the poster. We are not responsible for their content.
As for the Bank of Canada, I hate to think that innocent citizens of Canada would be the losers of this whole stupid strategy.
But... both *were* duped into investing.
P.T. Barnum is proved correct once more...
This is an important distinction as the Bank of Canada is the Canadian central bank, and the Royal Bank is the largest Canadian Banking group.
No problem - MS-BUSH, MS-DOJ will be more than happy to support their favorite monopoly - why run a business when all you need to do is sue, and sue and sue!
SUN does need a SCO licence or a Novel Licence due to is own operating system that does contain the code. So they had to pay some one.
Basicly SUN is playing it game it is not geting anymore that it is rightfully due.(In my mind they sould be geting more for Java and paying SCO less)
MS gives money to Sun. Sun gives money to SCO. Which benefits, uh, MS!
Right?
Corporations of the world - unite!
(how much do *you* give to the FSF?)
Gee, it's completely unreasonable to accuse someone of being in breach of contract without specifying immediately what the violations were, isn't it? Anyone who does that should be dragged through town on the back of a pickup truck, right? Have to hand it to Mr. Stowell there.
On the back of a pickup truck? Only if the bystanders are armed with baskets of rotten vegetables. If not then, perhaps, from the back of a pickup truck would be a more appropriate punishment.
<nobr> <wbr></nobr>/cp
OTOH, MS might just arrange for another small company to buy Sys V and start again, but by then the IBM countersuit should have cleared the kernels reputation...
Sun just got 1.8 BILLION dollars from MS over the friggin Java deal!
besides, Sun can claim that they need to pay for SCO licenses just to be squeaky clean and legal....
Sun - the big pal and friend of the 'open source' (otherwise known as 'corporate linux') community...
Sun is desparately trying to figure out a way to survive beyond the next 4 or 5 quarters. They should be, if the Company has halfway decent management, scrambling to keep their own ship from sinking.
The Microsoft $1.6 Billion is anticipated to only delay the inevitable demise of Sun.<nobr> <wbr></nobr>...perhaps they need to hire Anderer...
Also - I remember Sun's managers zig-zagging about using Linux and eventually deciding that "if you can't beat them - join them".
My guess is that Sun is very ambiguous about GNU/Linux and that they might well decide to turn against it in despair.
which, come to think about it, probably means that in the long term we *might* be better off with a lawsuit resulting in a defeat of SCO and a victory for the GLP rather than a simple banckrupcy of SCO.
maybe that is THE issue you guys should take a really close look at: have things not gone too far now and does the GNU/Linux community not *need* a victory in court to really feel safe?!
if that is so, SCO going bankrupt could do little to counter all the FUD already spread
Keep us posted & good luck!
If the investment makes the hopeless attempt to cash out and pull out the rug, then SCO pals can just raise their hands and say it had nothing to do with their iron-clad case, but all they can do is cancel the lawsuits and retire to Rio... The next MS shill can pick up the job.
SCO has failed to prove its case against Linux, and its stock increased dramatically due to its lies.
Wouldn't it be interesting if BayStar was really lying, declined to prove that it was telling the truth, and subsequently SCO's shares decreased in value to a negative figure?
That would be like SCO sowing the wind and reaping the whirlwind.
"And C++ programming languages, we own those, have licensed them out multiple times, obviously. We have a lot of royalties coming to us from C++."
This was in an interview in 2002 for ZDNet. (You'll easily find it on Google.) I just can't stop laughing!
Also, on the same subject, good old Blake Stowell is seen <A HREF="http://www.mozillaquest.com/Linux03/ScoSource-02_Story03.html#C++_Issues" TITLE="mozillaquest.com"> here </a mozillaquest.com> showing signs that SCO is completely clueless and is making up stuff as it goes along, obviously without doing much research.
Things don't change much, do they?
And of course, the flunkies are still shouting to the world that Microsoft are funding SCO. If the flunkies of the open source community spent as much time improving open source software as they do bitching about the world, and agreeing with themselves, open source would rule the world. It's a shame that the guys that do the good work have to deal with the losers and yes-men who just want to be in with the popular thing.
For your information, pal, Halloween X was validated by both SCO Group and the middleman who help arrange the fund connection, Mike Anderer. If you actually read our work, you'd already know this. Nothing in a NewsForge news story is published without documentation.
What's your name, pal? Anybody bozo can hide behind *anonymous*.
Wanna-be, eh? Google my name, counselor. I've been doing this for a long time, and I won't suffer fools like you for more than one minute. I suggest you and your smell move to the far side of town, with all the other dolts who have no clue.
Do us all a favor, and go pop off in one of the Fawcette forums. Then go pop yourself off.
Chris J. Preimesberger
Journalist
By the way, this is your cue to bignote yourself and string together a list of pathetically weak insults as if that somehow will show how smart you are. It's what insecure third-raters do instead of shooting down criticism with cold hard facts. I'm just some anonymous asshole - what's your excuse?
Look deep enough and you will find BayStar is a part of M$ in a long convoluted way<nobr> <wbr></nobr>..
Pete.
I don't expect you guys to stop - but I just wanted you to know.
SCO should live by their own rules and just pay it without asking any questions. They should do just what they expected Linux users to do, or they are nothing but hypocrits.
Odds are too many people started sniffing around since that leaked memo and MS got really nervous fearing that the DOJ might catch on. The are severing the ties to cut their liability.
The light came on and now the roaches are scurrying!
I'm sorry to wast this space but I just can't stop laughing
Bwaaa hahaha
Posted by: David Turnbulll on April 17, 2004 04:17 AM#