March 11, 2004

How Microsoft initiated $50 million SCO deal

Author: Chris Preimesberger

As we continue our investigation into the SCO Group of Lindon, Utah and its $50 million infusion of life from a Northern California venture capital firm (and others), we keep uncovering other thought-provoking sidebars. In fact, Wednesday evening was a particularly busy one on the SCO Group beat desk here at NewsForge. Here's a roundup:

BusinessWeek Online is publishing a story Thursday that says although Microsoft Corp. had no direct cash input into the $50 million SCO Group-saving PIPE (private investment in public equity) investment, the managing partner of BayStar Capital of Larkspur, Calif., did admit that senior executives from Microsoft approached him to ask BayStar to make such an investment. The managing partner, Lawrence Goldfarb, told BWO that neither Chairman Bill Gates or CEO Steve Ballmer were among the executives making the overture and did not name them.

Microsoft spokesman Mark Martin told NewsForge earlier this week that the company has no "direct or indirect" financial relations with BayStar. He had no comment about Goldfarb's admission that Microsoft execs called BayStar to suggest investing in SCO.

BayStar spokesman Bob McGrath also told NewsForge last week that Microsoft as a company had no involvement, but he also could not confirm that no Microsoft-connected individuals had a personal investment in the SCO Group transaction through BayStar.

We established in Tuesday's story that there exist many connections between Microsoft's overall strategic goals, its deep pockets, people who have been friends and allies for a long time, and the immediate need to stay alive experienced by SCO Group. This all would fit logically with the Microsoft executives going to visit Goldfarb in Larkspur.

Why Goldfarb and BayStar would want to place such an investment in a struggling software company with a dying primary market, major public-image problems, and a mere $20,000 in licensing income in its last quarter is a question yet to be answered. This is not addressed in the BWO story; NewsForge intends to follow up on this as soon as possible.

SCO Group announced last night a stock buy-back program, effective immediately, in which the company board of directors authorized the purchase of up to 1.5 million shares of SCOX over the next 24 months. SCO Group said it has approximately 14.4 million shares of common stock issued and outstanding. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes, SCO said.

This will allow SCO to repurchase its shares from time to time in accordance with the requirements of the Securities and Exchange Commission on the open market, in block trades and in privately negotiated transactions, depending on market conditions and other factors, the company said.

"This action reflects our strong belief in the fundamental value of our intellectual property and core business," said SCO chairman of the board Ralph Yarro. "At current prices, we believe our stock represents an attractive investment opportunity and that this action reflects our ongoing commitment to improving long-term stockholder value."

SCOX has had a rough week, losing 10 percent of its value on Tuesday alone and another 7 percent Wednesday, to close at $9.51 Wednesday after starting the week at just under $11. A dedicated SCO stock watcher who asked not to be identified told NewsForge that "it is not good for a company with declining revenues, mounting legal fees, and that requires special investment deals to stay solvent to be doing something like this. Personally, I think that they will not buy anything and this is just an attempt to stop the (price) slide."

Other connected pieces of information:

S2, the Mike Anderer ("Halloween X") company that is suspected of brokering the big transaction for SCO Group, has all but disappeared from the face of the Earth. Its Utah business license has expired, its Web site is dead, and no one seems to know where Anderer is located. S2 had an office in Redmond, Wash. that now appears to have morphed into another company we discussed on Tuesday called Entirenet. S2 also had offices listed in Salt Lake City, Columbia, S.C., Royal Oak, Mich., and Charleston, S.C. until recently. All the phones are now dead except for the one in Michigan, which now belongs to another company that has no idea who S2 is -- or was.

NewsForge has emailed Mr. Anderer using an address furnished by SCO Group itself, but he hasn't responded. Once again, Mr. Anderer, if you're reading this: Please email us at editors@newsforge.com, and we will gladly let you tell us your side of the story.

BayStar Capital is not owned by Vulcan Ventures, founded in 1986 by Microsoft co-founder Paul Allen, as has been reported elsewhere. Allen, who owns the Seattle Seahawks and Portland Trail Blazers sports teams, still owns a large stock position in Microsoft, but there is no known connection between him and SCO Group at this time.

Although it has been called the "BayStar deal" through most of this investigation, it has not been widely reported that BayStar wasn't the only money-handler in the SCO transaction. In fact, BayStar didn't even handle most of the $50 million. BayStar delivered 40 percent of the $50 million ($20 million). Royal Bank of Canada delivered the other $30 million to Lindon. RBC also had a stock position in SCO at one time, and may still have a position.

When asked Thursday if Microsoft or any of its divisions had any input into the Royal Bank of Canada portion of the PIPE deal, Microsoft spokesman Martin told NewsForge that "Microsoft had no involvement in that matter."

Our SCO investigation is far from over. It's nice to see BusinessWeek joining in. We hope other "mainstream" media also start turning their reporting eyes on SCO. As Eric Raymond's famous saying (almost) goes, "Many eyes make all hidden financial dealings shallow."

Category:

  • Legal
Click Here!