May 2, 2001

Linuxcare to be gutted

Author: JT Smith

From Linuxgram: "There's going to be very little left of Linuxcare after the haunted Linux service pioneer makes the layoffs put in train when its planned
acquisition by Turbolinux hit the wall running, informed sources report." The Linuxcare board has ordered the company to terminate all but about 30 people, maybe less, according to people familiar with the decision.

Linuxcare CEO Art Tyde blithely told this paper earlier today that the merger's failure would cost the company only 25%-30% of its current staff and declined to say how many people worked at Linuxcare.

Subsequent digging has disclosed that Linuxcare had about 110 employees on its roster as of yesterday. In its heyday, about this time last year, Linuxcare had about 290 people on its staff.

Tyde said earlier today that the cuts would not be "immediate" and implied that he had not even decided yet who would be terminated. Sources, however, believe the layoffs could start tomorrow.

In a second interview, Tyde claimed that Linuxcare is legally prevented from laying anyone off or making any other material changes until Turbolinux signs the paperwork terminating their definitive merger agreement.

He said Turbolinux had not yet signed because the two companies were at an "impasse" over how "customer engagements were to be divided" between them.

He claimed, "Turbolinux is not in any hurry" to sign the papers, but that if it didn't "tonight or tomorrow," it would a matter for the Linuxcare board.

He said he had hoped the papers would have been signed over this past weekend after a joint meeting of both boards called the merger off. He said Turbolinux has had the paperwork for 48 hours. He said it contained "six points."

Tyde claimed that "10 significant deals," worth in the "mid-six figures" to Linuxcare, were involved encompassing both service and support and products. The product deals, he said, would probably go to Turbo.

Tyde also said that there were other matters involving "work performed by Linuxcare for Turbolinux before the definitive agreement was signed" that have to be sorted out as well as how much Turbo owes Linuxcare for running its IT department for the "six months." It only ran it for the last couple of months according to a source close to Turbo.

How many people Linuxcare retains depends on how the terms of dissolution work out, Tyde said. Although at one point he allowed that staffing "may be around 30," he quickly added "maybe more," and if the company were to come by a sudden windfall, "a huge $600,000 tech support contract," for instance, it could mean saving another 20-30 people.

Turbolinux CEO Paul Thomas could not be reached at press time, but a source close to the company claimed there were no significant issues between the two companies.

How effective Linuxcare can remain with only a skeleton staff is a question. It may try to shop what's left, but a larger company could easily pick off its remaining staff. It has maybe $15 million in the bank by report.

It should also be asked why Linuxcare's board of directors refused to agree to a lower split of ownership of the merged Turbolinux-Linuxcare combine and decided on this course of action instead.

Turbolinux reportedly wanted the terms of the original merger agreement changed because Linuxcare came up significantly short of the revenue it said would bring in in Q1. Sources believe Linuxcare could have been short by as much as half its forecast, something in the neighborhood of $1.5 million as a result of the debacle.

Originally Linuxcare would have emerged holding roughly 40% of the combined company. When its short-term projections proved so myopic, the Turbolinux board reportedly grew concerned about the clarity of its forecasts for the rest of the year. At that point, the proposed merger began to unravel, a source said.

No Linux business has suffered such prospective decimation since SuSE canned three-quarters of its US operation in search of profitability back in February, leaving only 15 people in place.

The Turbolinux adventure is the second merger failure for Linuxcare. Ironically it quietly tried doing a deal with SuSE late last year, but reportedly the pair couldn't agree on final terms.

Despite rumors to the contrary, Thomas said that Turbolinux was not contemplating any layoffs and would in fact have to hire a few people to replace those fired in anticipation of the merger because their jobs were duplicated by Linuxcare. Both companies made layoffs at the time.

Sources close to the company, however, suggest Turbo may have to reduce headcount again to last until it can return to the public trough next year. It's currently believed to have about 250 people.


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