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The Almighty Buck Caldera

SCO gets $50 Million Investment 491

Posted by CowboyNeal from the fuel-to-the-flame dept.
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."
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SCO gets $50 Million Investment More

SCO gets $50 Million Investment

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  • In the corporate world, isn't this generally regarded as "not a whole lot of money?"
    • That would be true for normal companies that actually produce something of value. Fifty mil, if applied primarily to SCO's legal staff, would keep them around annoying the industry long after the rest of SCO has folded for good.
    • This is 50 times their previous cash on hand.
      Or put differently, they can now pay a lot of
      lawyers.
    • From the 'Stategy' section of their website it says:

      "BayStar Capital invests in a broad range of small and medium capitalization growth companies including, but not limited to: technology, telecommunications and life sciences. Capital needs of $5 to $50 million are targeted towards acquisitions, product development, marketing or sales expansion, or as a bridge to a public offering."

      So from this bit we can see they are putting every penny they can into SCO. Also they now own 17.5% non-voting shares of SCO
    • SCO's market cap is 283 million. these folks just bought about 18% of the company for 50 million, so basically they just paid the going rate for the stock--no cut rate deal here. Considering the stock is probably over valued this seems a bit odd at first glance.

      but maybe not. If we assume that SCO wins their suit id guess its worth about 2 billion dollars over a several years, maybe more. 18% of a 2 billion dollars revenue (less virtually nil in expenses) is 260 million, or basically a 5 to one profit

  • Other factors that may affect such forward looking statements include ... and claims of infringement of third-party intellectual property rights.

    This is one of the few cases where "third-party" is just too singular-sounding for the thousands of parties it applies to. But at least they are stating the obvious.
    • even better, this quote will get a big *no shit sherlock* and a big *SUCKERS!!!*

      "These statements involve risks and uncertainties. The Company wishes to advise readers that a number of important factors could cause actual results to differ materially from those anticipated in such forward-looking statements. The Company has a history of unprofitability and has only realized revenue from its SCOsource licensing initiative during the last two quarters and the intellectual property rights that it is asserti

  • How can we finally kill this thing? I'm getting so sick of all this!
    • Maybe we need a new slashdot subdomain to shunt all these stories off onto so that we don't have to see them: sco.slashdot.org. Oh, wait, can't do that. SCO would sue OSDN for using their name in the URL.

  • more money? (Score:2, Funny)

    by potpie ( 706881 )
    So the strategy is to give away money to a dying comapny so that it can pursue its dream of vain lawsuits and dishonor?

  • Comment removed (Score:5, Interesting)

    by account_deleted ( 4530225 ) on Thursday October 16, 2003 @11:10PM (#7236632)
    Comment removed based on user account deletion
    • What they want is some legal precedent that the GPL is somehow (and this I find hard to get a mental handle upon) unenforceable. If the GPL can't be enforced, what would give legitimacy to other types of license agreements? Magic? Wormholes from another dimension? Nothing says that an agreement between two or more parties has to fit some arbitrary business "standard" that happens to suit the likes of Forbe's suits. If you make an agreement, you should abide by it, and take the consequences if you don't
      • If the GPL can't be enforced, what would give legitimacy to other types of license agreements? Magic? Wormholes from another dimension? Nothing says that an agreement between two or more parties has to fit some arbitrary business "standard" that happens to suit the likes of Forbe's suits
        Simple. Money.
      • No, what some companies really want is for the GPL to appear more restrictive than it is, so that companies are inhibited from using GPLed software.

    • It's actually good news if you don't like SCO (Score:5, Informative)

      by Strudelkugel ( 594414 ) * on Friday October 17, 2003 @12:02AM (#7236952)

      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:

      1. "Invest" $50M in SCO
      2. Receive shares for their "investment", $50M/$16.93 = 2,953,000 SCOX
      3. Last but definitely not least, go short 2,953,000 SCOX in the open market. (They don't tell you this part)

      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.

      • This is a better explanation than any I've seen.
      • These are not "death spiral" convertibles. To have a death spiral you next to have a variable conversion ratio, so that as the stock price drops the convertibles convert into more and more shares.

        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.

      • What is the point of buying stock (go long), when
        you are shorting it at the same time? There is
        no point.


        Unless they are hedging their put options. (does
        sco have options?)

        • I was about to make exactly the same point.

          If you short the amount you hold all you are doing is protecting your capital amount. What you win on the shorts is what you lose on the shares and vice versa.

          So unless there is something else I think the original post misses the point.

  • Worst-case scenario (Score:4, Insightful)

    by ca1v1n ( 135902 ) <snook@nOsPaM.guanotronic.com> on Thursday October 16, 2003 @11:11PM (#7236639)
    This isn't enough money to pull them out of their revenue doldrums. It's just enough money to make them a huge pain in the ass. If it were $500 million we'd probably have *less* to worry about, because they might be able to actually pursue product-based revenue streams.
    • Actually, this is quite enough to help them through their "revenue doldrums." $50 million gives them cash to burn for a few years, at least. If you take out the money Microsoft and Sun have tossed their way, they've lost about $3 or $4 million over the last 12 months, and the year before that they lost about $24 million [yahoo.com]. Bottom line is that $50 million should keep them going for at least 2 more years, even while fighting a hefty legal battle.

      Heck, their market cap is $275 million, so you could look at t
      • You're right, this will keep them going for a while. What I meant (and did a bad job explaining) was that it's still not enough for them to really change their business model. They're fucked in the long run, but in the short run they'll try to make it someone else's problem.
    • They've pumped up the stock on (likely) knowlingly false statements, and damaged RedHat and IBM some. IANAL, but it seems like by this point there'd be enough proof for SCO to lose quite a bit of money in damages based on these claims. SCO has pretty much chosen their irreversable course of action unless they can simultaneously make their investors happy, call off their lawsuits, and convince IBM, RedHat, and their VARs that they'll play nice for the forseeable future. It'll take a hell of a lot more tha
    • because they might be able to actually pursue product-based revenue streams.

      That is, if, and that's a big IF, they were at all interested in pursuing product-based revenue streams.

  • Good ... (Score:4, Interesting)

    by molarmass192 ( 608071 ) on Thursday October 16, 2003 @11:11PM (#7236645) Homepage Journal
    now IBM will have something to collect when it wins on those patent infringement suits they've filed against SCO. $50 million or not, it's game over come April 2005 for these guys.
    • Oh God! You mean we have to listen to this crap for another 18 months? And that's just before the trial starts! There will be delays and continuances and all manner of legal games just to drag it out.

      BTW, I don't think IBM will get any of that $50 mil. It will all be gone...taken by lawyers and CEOs cars/vacation homes.

      On a side note, I wasn't really in the industry when the whole BSD/Unix lawsuit took place. I do know that the reason we have Microsoft Server today is that the lawsuit scared companie

    • Re:Good ... (Score:3, Insightful)

      by bigberk ( 547360 )

      now IBM will have something to collect when it wins

      This was what I was thinking too. * And * now the SCO execs have some people with pretty serious investments in their company that they are going to be accountable to. If I was in McBride, I would try to be accountable to as few people as possible -- because when you're hauled before court and it's exposed that your company has no product, provides no services and has tried to manipulate investors using unjustified, false claims, the last thing you wan

  • Sweet? (Score:2, Interesting)

    by MrKinkade ( 676107 )
    hehe Great. That means they'll now still have money left when IBM/SGI/RedHat come seeking damages.
    • Good point. Not only would it be nice to see Redhat's suit result in silencing SCO but also receiving a punitive damages award would be extra motivation for the legal team...

  • Now I get it... (Score:2, Funny)

    by ejaw5 ( 570071 )
    So THIS is why they stopped sending out those invoices [slashdot.org].

  • SCO, owner of Unix (Score:2, Insightful)

    by NJVil ( 154697 )
    "LINDON, Utah, Oct. 16 /PRNewswire-FirstCall/ -- The SCO(R) Group (SCO) (Nasdaq: SCOX - News), the owner of the UNIX operating system, today announced it has received a $50 million private investment led by BayStar Capital, an investment fund that is a leader in providing negotiated private equity placements in publicly traded companies."

    Was SCO ever legally determined to own Unix? I can't keep track of the things that SCO claims to legally own anymore.
  • On the bright side, they now have enough money to be worth suing! Now all the kernel developers (whose copyrights SCO continues to violate!) can get a piece of the pie. :)
    • Have any proof? I'm not pro-SCO, but all I've heard so far to back this claim up is that SCO is charging or attempting to charge [corporate!] Linux users for licenses. While I agree this is bullshit, they have a valid point (should it ever be proven) that their code was submitted to the Linux kernel without permission.

      But for those that read the transcript of the Darl interview posted on /. recently, SCO won't inform the Linux community what code is [supposedly] violating SCO's copyright. This is being don

      • > Have any proof?

        Proof isnt needed.
        Even if SCO is right and there is code in linux that SCO is not allowed to distribute, SCO is still not allowed to charge for other peoples copyrighted work.

  • I'm sure Baystar would appreciate some public reaction to this decision.

    How about we fire off a few emails to their contact address.
    info@baystarcapital.com

  • This is so irresponsible (Score:3, Insightful)

    by Texas Rose on Lava L ( 712928 ) on Thursday October 16, 2003 @11:13PM (#7236662) Homepage Journal
    Think how many starving children you could feed for $50 million... or how much cancer research you could fund. I mean seriously, they couldn't think of anything better to do with their money than give it to SCO?
    • Children rarely, if ever, starve due to lack of money.

      In fact, children do not starve due to lack of food.

      They starve because their country's government either withholds it, or is so inefficient it cannot properly feed its citizens.

      There's more than enough food to feed everyone on the planet, but a lot of it ends up going to waste.
    • Err... Careful, you could say the same about any large investment of money. Just because no sane person approves of giving $50m to the Smoking Crack Operation doesn't mean we should try to guilt the insane into seeing it our way.

      The money that goes to SCO isn't going to just evaporate. When money is spent on something it ends up back in the system. When SCO drains their funds on legal fees and crack or whatever they spend money on, that money gets put back into the economy and may eventually one day

  • But it won't matter in the end. They are doomed and any idiot who invests in them or carries a long position in their stock is going to get screwed. Unfortunatly there is still a unhealthy supply of idiots handing out other people's cash trying to get the '90s levels of payback again.

  • Merry Christmas.... (Score:3, Funny)

    by smd4985 ( 203677 ) on Thursday October 16, 2003 @11:17PM (#7236683) Homepage
    to David Boies. SCO will be taking caring of the next few generation of Boies' family....

  • Cui bono (Score:5, Interesting)

    by whig ( 6869 ) * on Thursday October 16, 2003 @11:18PM (#7236697) Homepage Journal
    Who controls BayStar?

    Answer that question, and it will probably become obvious why they would be willing to "waste" $50 million.

    SCO is just a foot soldier in a war that is being fought by Microsoft and associated proprietary software firms against the adoption of Linux as the dominant Operating System for the next century.

    They are buying time, for one thing. Every day this FUD campaign drags on, slows the rate at which corporations switch their infrastructure to Linux. For all that those in the know realize what a crock of steaming shit this is, the courts are unpredictable at best, and PHB's are a conservative lot. Many won't bet their future on an OS which is the subject of litigation because they cannot be certain of the outcome.

    SCO will die. But that's what foot soldiers do. Meantime, those pushing them forward are happy to lend them all the resources they need to prolong the fight.
    • And so it begins in earnest...
      On the plus side, this means that we are long past the point where proprietary corporations see us a threat and to the point where they start seeing us as a true revolution.
    • Better question.

      Name a company that can afford to just throw away $50 million, and hates Linux.

      • Take a look at this:
        http://www.piratenet.com/index2.html

        I was just watching the Preview for "Bludd".

        It made me laugh.

        This is another one of BayStar's investments.

    • Re:Cui bono (Score:2, Insightful)

      by Keebler71 ( 520908 )
      What proof do you have that Microsoft is behind the SCO situation? Do you not believe it is possible that there exist TWO greedy corporate entities in the world?
      • Well there's no proof, as you correctly pointed out. However, it is interesting to note that Baystar Capital claims [baystarcapital.com] (page 3) Microsoft as one of their top 10 investors in PIPE's (Private Investments in Public Equities). The investment in question is a PIPE, by the way. It may be a coincidence, but it would certainly be an interesting coincidence.
      • Here [baystarcapital.com].

        See page 3: Top ten investors in BayStar:

        Microsoft Corporation is listed as having about a half billion dollars invested.
    • That would be a really interesting and damning turn of events, if it were true.

      Care to do more than just insinuate?
  • I'm glad I don't deal with them but the funds that I used to invest in had massive problems with stupid investments which is a common problem with mutual funds. They have $X amount of money they must invest every week. Then on the 1st and 15th they have $Y they also must invest. I'm sure its easy the 1st few weeks to find something good to invest in but after a while all the good stuff is gone and the law says it must be invested. Where is Fidelity going to put a billion dollers next week?

    I just found
  • I have the forumla for working cold fusion. for 100 million dollars, I will hand over all details, patents pending, and copylefted material.

    Please send a check or money order to...

    oh wait... damn, never mind.

  • More Jail time for Daryl et al (Score:4, Funny)

    by the_other_one ( 178565 ) * on Thursday October 16, 2003 @11:24PM (#7236739) Homepage
    Apparently they are not just smoking crack.
    They are trafficing.
  • as the chances are that they stipulated what the 50 mil is to be used for.. and they might think that their linux case is a waste of time.. they MAY have stipulated that they don't use the 50 mil for that case...

  • They are gambling, as with any investment. They seem to think there is enough of a chance that they will win, that they will get some return on the investment. Same thing as Deutsche Bank.

    DB apparently thinks the odds are between 1 in 3 or 1 in 4 that they'll win. They see a $180 per share upside if SCO wins, but a zero value if they lose. So, if you look at it as P(win) * $180 + (1-P(win) * 0) = their target of $45. So, P(win) is 1/4.

    Alternately, you can look at it as either $30 upside (from ~$15

  • why am I not suprised to see them used in the same sentence? :)
  • "private equity funding"?? Does anybody else think this deal smells? These guys are just a front for some private investors, i.e. they supposedly solicited the the investment from some third parties after putting together the package for an equity purchase in SCO. I wonder who those third parties are? Well you'll never know because it's a private placement. This is just a device for concealing who is really behind the funding. If your ever able to dig down through the byzantine structure of corporate, partn
  • I can't fathom the concept of investing in this company
    --------------------

    http://news.zdnet.co.uk/business/management/0,3 9 02 0654,39115337,00.htm

    "We have an authorised capital of 45,000,000 shares of Common Stock, par value $0.001 per share... Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorised but unissued shares," the statement said. "Any such issuance will dilute the percentage ownership of shareholders and may dilute the book value
  • Hmmm, let's see:

    * - First, it becomes public that many of the top SCO execs are cashing in big stock options as they get pumped in the media as the thorn in Linux side. Several collect tens of millions of dollars from stock not worth a nickle prior to the IBM "lawsuit".

    * - Next, we never actually see any of the "evidence" that is to be used in the case, just small portions of what is promised to be "major violations of IP" that they may -- or may not -- actually own. This issue gets set aside a

  • Why are rich companies so dumb? (Score:3, Insightful)

    by rainmanjag ( 455094 ) <`joshg' `at' `myrealbox.com'> on Thursday October 16, 2003 @11:42PM (#7236851) Homepage

    From the article:


    "BayStar Capital looks to invest in growth-oriented firms with strong management, substantial market opportunity and solid, comprehensive business plans, and we believe that all of those fundamentals are in place for SCO to succeed," said Lawrence Goldfarb, General Partner, BayStar Capital. "SCO owns the most predominant UNIX software assets in the I.T. industry, has a 20 year history of providing trusted software solutions to end users around the globe, and an aggressive and seasoned management team focused on generating profitable growth."



    Are you fscking kidding me? How does SCO continually manage to BS rich investment firms into believing it is more than just a frivolously-litigating, artificial-stock-inflating joke? Are investment firms really that dumb? Can I sue IBM and just get $50 million by pretending to be a player in industry?

    -jag

  • Class action time (Score:3, Insightful)

    by Gunfighter ( 1944 ) on Thursday October 16, 2003 @11:56PM (#7236922)
    Now that SCO actually has some money to throw around, this is the ideal time for all of us who support Linux for a living to file our class action suit against them for the damages their false claims have had on our ability to make a living.

    After all, in this impromptu, roadside interview [groklaw.net], Darl @ SCO basically states that they have to protect their income (6:42 into the conversation) and their employees' livelihoods. Those of us who depend on Linux for a living should protect ours too.

    As an independent IT pro, I can honestly say that my company's bottom line can definitely use an injection. SCO's unchecked, continuing spreading of FUD has seriously impacted the number of companies implementing Linux (thus lowering the number of potential customers).

    Let's face it, SCO's practically using the court system as its marketing department. That "courtroom marketing" just got the company a nice, fat $50M check. I don't see how they can get away with this right under the SEC's (apparently not-so-watchful) eye. It's so ridiculously obvious that they pumped up their stock with false claims and dumped it successfully for a huge profit, and now they're getting ready for a second round of pumping. I wonder how much the SCO execs will rake in this time around. (watch SCOX tomorrow)

    SCO: Give me a copy of your source code, the Linux source code, and the BSD source code and I'll tell you whether or not your claims hold merit. My bet is that after I publish my results, your precious UNIX products will have nice, big GPL and/or BSD licenses on them. Either that, or your UNIX products will fit on a 1.44MB floppy after I remove all of the code you stole from the BSD project(s).

    It's great to see that your Bayside stakehorse just dumped another bankroll of chips in front of you. I'll see your UnixWare and raise you one Linux kernel. Now call, fold, or get the hell out of the game. Whatever you do, make it quick before everyone notices you're dealing from the bottom of the deck.
  • SCO has been around for how many years now? What the heck have they accomplished? Not a whole heckuva lot; essentially a worn out implementation of UNIX.

    After all, thier main competitor on the PC platform was MS was it not? With DOS and Windows operating systems being the main competition? Now it seems that they are fighting a battle on the side of their old competitor.

    I'm really sick of the whole thing. It bores me.
    Next issue please!
  • I wonder if this might have anything to do with making SCO profitable for the 4th and final quarter (or possibly the next year) for Daryl to get his bonus. He gets it after the 4th consequtive profitable quarter, and even more after a year.

  • This buys us tons more SCO stories! Keep it coming, fellas! MS-bashing is *so* last century.
    • This buys us tons more SCO stories!

      Damn... groklaw.net is going to need a few mirrors if SCO keeps this crap up and dumps this $50M into its FUD machine.

  • They evidently didn't learn a thing from the dot-com bust, which came from investors throwing gobs of money at tech companies with no hope of success. These guys are throwing gobs of money at SCO (probably because they owe the Canopy group a favor), so SCO will stay around a little longer, but still fail miserably. In the end, these people will have absolutely nothing to show for their $50 million. It'll be a good lesson to them. Natural selection in the business world.

    steve
  • I wonder if MS had anything to do with this?
  • Comment removed based on user account deletion

  • Good, (Score:2)

    by Sebby ( 238625 )
    So now stock holders will have another company to sue when all this comes crashing down

  • That's $50 million more for them to lose in countersuits. And eventually, after lawyer fees, $5-$10 million back to the open source community.
  • Its easy to see why they would invest in SCO, just look at the stock price.

    To draw some paralell to the dotcom era; lots of companies getting over inflated IPO's and getting lots of cash through that avenue...These people and companies getting rich don't care whether or not SCO will be around for the long haul as long as they get back more than they invested. So, if you invested 50 million and through the stock market you get back 75 million then all the better. Of course they are really aiming for some so

  • Why did they do this? (Score:3, Insightful)

    by theolein ( 316044 ) on Friday October 17, 2003 @02:42AM (#7237701) Journal
    I can believe a VC company doing this. All those braindead VC people from the dotcom days were plaowing much more money than this into similar hairbrained schemes, so there doesn't seem to be a lack of stupidity in VC companies.

    What it does highlight is the way the VC suits think, and what they actually know of technology. It shows that VC suits like companies with management that makes big bold and agressive statements. It shows that VC companies will spend money on words alone, because SCO's verbal tactics open them to charges of slander and libel, and even if they actually win part of the case (although I severly doubt it, IBM is going to kill them in court I think) there's still the RedHat and IBM countersuits to consider.

    What this makes me think is that it's time to start skinning VC companies for money again. All you need is some arsewipe businessplan and some agressive statements and someone who's been in the business for a while and the VC loonies will throw $50 milloin at you.

  • Deep Pockets (Score:3, Interesting)

    by rf0 ( 159958 ) <rghf@fsck.me.uk> on Friday October 17, 2003 @03:35AM (#7237806) Homepage
    Sco might have $50 mil but IBM has a couple of billion. I think I can see who is going to last longer in a drawn out court battle

    Rus

  • Ridiculous (Score:3, Informative)

    by pimpinmonk ( 238443 ) on Friday October 17, 2003 @04:16AM (#7237872)
    Jesus, how blind are these investors? How long do you think it will take SCO to make back $50 million in profits, assuming they succeed in their suit? I mean, it's not like the license is an exponentially growing market. In the ideal SCO-wins scenario (i'm talking from their point obviously), they'll sell a finite amount of licenses and view VERY little growth. It's not like they release a product every two years which requires their entire userbase to buy a new license (*cough*MS*cougH*). So how could SCO be seen as a company with huge growth potential?

  • read redherring article to understand (Score:4, Insightful)

    by walterbyrd ( 182728 ) on Friday October 17, 2003 @08:56AM (#7238580)
    The way this works, as I understand it:

    1) BayStar loans Scox $50 million.
    2) In return, scox owes baystar $50 million worth scox stock. NOTE: the 2.9 million shares is just an estimate based on scox's share price over the last 5 days. If scox share price falls to $8.50/share; then scox will owe baystar almost 6 million shares. Scox has about 13 million shares outstanding now - that means *huge* dilution.
    3) baystar takes a huge short position in scox.
    4) Since scox now has a cash position of $61 million, scox is now worth suing. Scox is already being sued by about six different companies, expect more to pile on.
    5) Death spiral.

    It's worth taking a quick look at the article.

    http://www.redherring.com/Article.aspx?f=article s% 2farchive%2fmag%2fissue95%2f1310018931.xml

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