, we looked at SCO's stock price as
a sort of public referendum on the company's prospects. Shortly
thereafter, the SCO Group made it clear that company management, too, is
watching the stock price closely, and is not pleased with what it is
seeing. Thus, SCO has announced
stock buyback program in the hopes of raising the price somewhat - or, at
least, halting its decline.
What the company has announced is that the board of directors has given its
OK for management, "at its discretion," to buy up to 1.5 million
shares of SCO stock over the next two years. Board chairman Ralph Yarro is
quoted as saying:
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. We believe we
will have sufficient capital resources to undertake this buyback
program and continue to pursue our strategic initiatives.
The interesting thing, of course, is that capital resources is one thing
the SCO group lacks. From the
latest quarterly report filed with the SEC, we read that "Our cash and
equivalents balance decreased from $64,428,000 as of October 31, 2003 to
$57,945,000 as of January 31, 2004." $58 million is not a
small cash pile, but one should bear in mind that this pile has to sustain
the company in litigation for over a year until the IBM case comes to
trial. Delays in that trial seem likely; if SCO should somehow win some
sort of judgment, an appeal also seems likely. SCO's ability to stay
afloat long enough to see its various lawsuits through is doubtful as it
is, without spending millions of dollars on stock buybacks.
Company management understands this; that is why the same quarterly report
includes this text:
If we repurchase a substantial number of shares during this
24-month period, and we do not generate off-setting revenue form
our UNIX and SCOsource businesses, our cash position could decrease
significantly and our ability to fund future operations could be
Spending SCO's scarce cash on SCO stock would thus seem an absurd thing to
do. So one might well wonder what is really going on. If one were given
to wild speculation, one might come up with either of the following
- The press release states that the shares will be repurchased "on
the open market, in block trades and in privately negotiated
transactions, depending on market conditions and other
factors." It is not that hard to imagine "privately negotiated
transactions" being used to funnel money out of the company and into
the pockets of selected shareholders (at "privately negotiated"
prices) before the whole thing falls apart.
- The company has no actual intention of buying back shares; it simply
issued a PR in the hopes of convincing investors that the price will
be going back up soon.
The first scenario looks like a "go directly to jail, do not pass 'Go'"
card for the people involved. One never knows, but looting the company in
that way looks extreme even for SCO. The second option (issue a PR, do
nothing), on the other hand, is something we've seen from this company
before. We will find out for sure in future SEC filings, but the odds are
that SCO will not be buying back those 1.5 million shares.
Meanwhile, the public confirmation from BayStar that Microsoft did, indeed,
direct them toward investing in SCO has had its own effect on how the whole
SCO case is seen by the wider public. SCO has, at this point, definitively
lost the public relations battle.
Finally, a related development is the announcement
of the launch of Open Source Risk Management and its "open source risk
protection services." OSRM will sell you an indemnification policy for
free software, and will even allow customers to modify that software. The
company's offering is based on "sophisticated code-scanning technology and a
set of best practice protocols," along with the results of Groklaw's
efforts to track down the origins of the code in the Linux kernel. We can
only welcome a company which is trying to make free software users sleep
better at night, but it should be noted that this sort of insurance policy
needs a risk to insure against. As SCO goes down in flames, potential
customers might well wonder if they really need this sort of protection.
Let's hope that some other hungry, litigious corporation does not answer
that question for them.
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