SCO gets $50 Million Investment 491
sjbe writes "It was announced today that SCO received $50 million in private equity funding. The lead investor is BayStar Capital which has invested in Roxio among other companies. This gives SCO a pretty big war chest to fight IBM. Before this investment SCO only had a few million in cash remaining. If you thought SCO was annoying before, this won't help."
Re:$50 million? (Score:2, Informative)
i mean - msft's revenue crushes IBM, at a whopping 32.19B.
oh wait, back up, reverse that... IBM does nearly 3x the revenue of MSFT.
IBM is *the* big boy... and they've been itching to pay msft back for a while now...
It's actually good news if you don't like SCO (Score:5, Informative)
From the PR:
The investment in SCO was structured as a private placement of non-voting Series A Convertible Preferred Shares, convertible into common equity at a fixed conversion price of $16.93 per share, which was the average closing bid price for the Company's common stock for the five previous trading days prior to the date of closing.
As someone else pointed out (but didn't get modded up since this is a site for tech geeks, not financial geeks), SCO has more than likely received what is generally known as "Death Spiral Financing." If BayStar believed in SCO, and SCO thought it had a future, the conversion price would have certainly been higher than the "average closing bid of the last trading days..."
Here's how BayStar makes money:
For those who aren't familar with shorting, this means borrowing stock you don't own to sell to someone else. You get the money, but you will have to give the stock back in the future, since it is borrowed. What you are anticipating is that the share price will go down, so you can buy the shares back for less than you got for them. Profit!!! The danger is the that stock will go up, which you means you will have to pay more than you originally got, causing a loss to you. So why is BayStar doing this? Easy, SCO just gave them enough shares to "cover their" short position. If the stock goes up, BayStar is covered. If it goes down, Profit!!! This is a big SHORT bet by BayStar. If SCO wasn't desperate, they could have told BayStar the conversion price is $20/share for example, something higher than the current average price when the deal was signed.
This most likely signals the beginning of the end of SCO.
You got it wrong (Score:1, Informative)
The loan scheme involves a a floating convertibility price of the debt to stock, not fixed.
If SCOX was priced at $20, and the debt could be converted at a sliding scale (usually a discount is given below market value too), the there is an incentive for the price to go lower. At $20 a share, with a $50 mill debt, it can only be converted into 2.5 million shares. When the price drops to $10, not the debt can be converted to 5 million shares.
Shares are then sold short to drive the price down, and then the debt is converted to stock and handed back.
If the converting price was fixed, then there would be no incentive to drive the price down since that debt is also fixed in number of shares. Driving the price down would actually lose money.
Shorting stock that you hold is just a way to hedge against a drop in price, not make money.
Re:It's actually good news if you don't like SCO (Score:3, Informative)
The SCO convertibles have a fixed conversion ratio. It is true that buyers of such convertibles will short to stock to hedge their position, but a fixed convertible will only hedge a fixed sized short position. A variable convertible can hedge an exponentially increasing short position.
Re:It's actually good news if you don't like SCO (Score:3, Informative)
This is just a normal PIPE (private investment in public equity).
I don't think we know that yet. The S1 hasn't been filed yet.
See the comment by be2weenthelines on the Groklaw discussion [groklaw.net].
Quote:
3) One of the bells and whistles these may have is a variable conversion price, along with the fixed 16.93 conversion price we know of. (Aside: its typical for the fixed conversion price to be set off the trailing 5 day average - nothing unusual there.) If they do, it typically works so that as the price of SCO falls, the conversion price also falls, i.e BayStar's $50million investment converts into more than the initial (roughly) 3 million shares. e.g. if SCO's price falls from $20 to $10, BayStars conversion price falls from $16.93 to $8.46 so they can now convert into (roughly) 6 million shares. The point is to protect the value of their investment: 3 million shares at 16.93 ~= $50million. 6 million shares at 8.46 ~= $50 million. The implication for current shareholders is that as the stock price falls, the dilution increases. 3 million shares ~= 20% dilution. 6 million shares ~= 40% dilution. Often there is no limit to how low the conversion price can go and dilution can be total: BayStar may end up owning the entire company. *If* (and I emphasize if) the preferreds are structured this way, they are commonly called "Death Spirals".
Ridiculous (Score:3, Informative)
Re:SCO market cap is 283 million (Score:2, Informative)
Look harder (Score:2, Informative)
You are wrong about this connection. The white paper is a fluff piece pushing Baystar's prime busines interest: PIPEs. As such, the numbers mostly refer to the whole PIPEs industry to make it look like Baystar has a much bigger interest than they actually have. It's like Charter Communications claiming that they are part of the "XXX billion dollar cable TV industry" when they only have a small percentage of the market.
In one chart, you can see that there have been thousands of PIPEs since 1995, including 612 in the latest year (2002). Of those thousands, Vulcan Ventures and Microsoft Corporation are in the top ten in dollars invested.
However, Baystar claims to have been involved with 90 out of those thousands of deals ($400M total). They do not detail their clients and cusotmers in this document, but they do list their "partners:"
Larry Goldfarb
Steven Lamar
and "strategic partners:"
Thomas Hicks (Hicks, Must, Tate, & Furst)
Steven Hicks (Hicks Capital)
Andrew L Farkas (Insignia Financial)
Louis C. Gerken (Gerken Capital)
Kianfilippo Cuneo (Baystar)
Re:18% in non-voting stock!?!? (Score:3, Informative)
I'm curious about what kind of person would buy 18% of a company with the stipulation that they would have *NO* say in how that company is run.
By definition, preferred stock does not give the buyer a voice in the way the company is run. It does, however, get preferential treatment if the corporation folds. AIR (and it has been a long time), owners of preferred stock are reimbursed at face value when the company disolves. My guess (see disclaimer above) is that in this deal, the buy-back value is fixed somewhere around $20/share. Preferred stock claims are met after creditors are satisfied but before common stockholders receive the final distribution.
It is because of this preferential treatment at the company's deathbed that preferred stock has no vote. If you think about it, that's a necessary protection for the company's health.
To the extent that SCO's fixed assets exceed $50 million and its debt structure is sound, there is not much risk to the holders of this stock.
To my mind, this confirms that SCO is using a "shoot the moon" strategy and expects to either win big or self-destruct in the near future. In other words, SCO is not behaving as a normal going concern, and the usual methods of assessing its long term values don't apply.
We've been saying that on slashdot for months, speaking from a technical viewpoint. But that message has not been getting through to accountants and market analysts. This preferred stock deal, at roughly 20% of the company's total current market value and contributing about 90% of its operating funds, is something that accountants and market analysts do understand. This is not the kind of move those guys expect from a healthy company. Today might be a particularly good day to short SCOX, before the analysts start publishing their articles.
Of course nobody would ever follow market advise given freely on slashdot, right?
My email to baystar (Score:2, Informative)
Funding SCO may not be too smart.
Firstly : because their business plan looks more like a way to get enough profit so that the CEO can grab a pile of cash and run and less like any kind of real plan for future earnings.
Secondly : their business practices are at best sleazy and at worst illegal. They've make extortionate claims against people who have no connection with their business whatever.
Finally : they've managed to irritate, annoy and generally make seriously cranky a large number of the people that they should be playing nice with if they expect to sell any OS software in the future.
You may end up with a fun question to answer :
How will you explain to your investors the fact that you lost $50 Million on this company?
Or worse yet:
How were the decision makers at your company persuaded to make this investment knowing full well that SCO was an empty shell? And was this decision smart, ethical and legal?
Re:$50 million? (Score:1, Informative)
Taking the Measure in Patents [nyjournalnews.com]
Quantity doesn't always equal quality.
It's an old adage, but one that's particularly apt when turned to the topic of patents.
The U.S. Patent and Trademark Office has granted more than 6 million patents -- 177,317 last year alone. Most are destined to languish in obscurity, along with the companies that generated them.
Separating the innovators from the also-rans requires more than simply adding up the number of patents a company receives.
Worthwhile patents have tentacles into the industry a company occupies. They cite the patents and scientific research papers that came before -- and are in turn referenced when new patents are filed.
True breakthroughs can take an industry by storm, and for years afterward the patents elucidating those ideas are cited in other patent applications, said Pat Thomas, a research analyst with CHI Research of Haddon Heights, N.J.
"Companies that own these patents have better sales and better profits," Thomas said.
They also fare better on Wall Street. CHI created a fantasy portfolio of 25 technology-dependent companies and tracked their stock performance from 1990 to 1999.
"Companies with strong patent portfolios outperformed other companies in the same industry," Thomas said.
CHI has invented a formula that measures a company's "technological strength" by multiplying the number of patents it generates by something it calls a "current-impact index."
CHI looks at how often a company's patents from the previous five years are cited in the current year's patents and assigns an index value. A value of 1.0 indicates an average frequency of citations. A value of 1.2 indicates a company's patents are cited 20 percent more often than average.
Armonk-based IBM Corp. has a 10-year history of generating more patents than any other company, so it's no surprise when the computer giant is rated tops in technological strength.
But what about Immersion Corp.? The San Jose, Calif., company has just 132 employees and a modest $20 million in yearly sales. Even so, Immersion -- which invents sensory feedback technology -- was rated No. 1 in "current impact" in the most recent scorecard from CHI and Technology Review magazine.
That impact isn't being felt on the bottom line yet. Immersion lost $16.5 million last year and its stock is trading around $1.20 a share.
Though tiny, Immersion is the only player in an emerging arena, said Dean Chang, Immersion's chief technology officer.
Founded in 1993, Immersion has received 186 patents and has 200 more pending.
Its feedback technology has been widely adopted by makers of gaming devices such as joysticks, including Logitech, Microsoft, Belkin and others who peddle controllers that let players feel every turn, bump and dip.
Sensory perception technology is also emerging in the automotive, medical and 3-D design industries, giving Immersion additional licensing and marketing channels for its inventions.
When it comes to patents, it's not how many you have, it's what you do with them, said Ed Kahn, a specialist in strategic intellectual property management and founder of Cambridge, Mass.-based EKMS.
The patent process has traditionally been considered a defensive move to prevent a rival from stealing an invention, but some companies are turning intellectual property into revenue.
IBM, which received $1.1 billion in intellectual property income last year, is a good example. "They really work their patent portfolio," Kahn