SCO's suit against Novell had a day in court on May 11, when two
motions were heard. SCO is trying to get this case moved back to state
court, where it expects a more friendly hearing and where certain awkward
issues, such as whether copyrights were actually transferred from Novell,
cannot be considered. Novell, meanwhile, is opposing the move and is,
instead, trying to get the whole case dismissed. Judge Kimball - the same
judge presiding over the IBM case - has not yet ruled on either motion as
of this writing. Groklaw has an
of the proceedings.
The $50 million in capital which was pumped into SCO last October is
usually termed the "BayStar investment," but, in fact, $30 million of
that total came from the Royal Bank of Canada (RBC). RBC made a couple of
interesting moves last week:
- $10 million of that investment has been
converted into ordinary SCO shares at $13.50 per share. The value
of SCO's stock on the market was less than half that figure at the time,
and has declined since; RBC, in other words, is taking a big loss on
part of its investment.
- The rest of RBC's investment has been sold
to BayStar at an undisclosed price.
From RBC's point of view, the moves are perhaps understandable. The
chances of ever getting the original investment back from SCO were small
and shrinking; RBC (or whatever investor is hiding behind RBC) decided to
cut its losses and get out while it still could.
BayStar's motivation is a little harder to comprehend. After all, BayStar
stated last month that it wanted to redeem its investment in SCO and get
out; now it has, instead, doubled the number of preferred shares it holds. One
assumes that BayStar got the shares for less than their original price,
but, given BayStar's public lack of confidence in SCO and its management,
why is it increasing its stake in the company?
One possibility which has been raised is that BayStar wants to increase its
leverage over the board of directors and thereby improve its chances of
forcing management changes on SCO. The RBC shares, if converted, would
give BayStar an approximately 20% stake in SCO; enough to be heard, but
still nowhere near enough to dictate changes. Alternatively, BayStar may
think that, by way of court, it can extract the full $40 million
represented by those preferred shares from SCO.
The most ominous possibility, perhaps, is that BayStar may be maneuvering
to take possession (or, at least, control) of the IBM suit after SCO
collapses. That suit is, after all, the one SCO asset that BayStar sees as
being worthwhile. In this scenario, the case could continue long after SCO
collapses. BayStar could, conceivably, apply more financial resources to
pursuing this case. But no amount of money can make SCO's claims any more
Finally, SCO's second fiscal quarter ended on April 30; an earnings
report is due within the next few weeks. One assumes that its results will
be something other than spectacular. Expect the usual theatrics as SCO's
management attempts to distract attention from the fact that the company is
losing its traditional customers, is not selling "Linux licenses," and
continues to bleed cash.
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