Investment Firm Bids to Buy SCOs UNIX Operations

WebCowboy writes "It appears that there are still enough people out there deluded enough to see value in SCOs UNIX operations. York Capital Management has put in a $36 million bid for SCOs UNIX operations. The offer includes coverage of up to $10 million for payment of legal fees and York Capital would assume ownership of the disputed UNIX IP as well as what is left of the lawsuits. Interestingly, SCO has offered this up for competitive bid (who would want to though?). Upon completion of the transaction, should bankruptcy court approve, SCOX would become solely a mobile applications provider (which is the only part of SCOs offerings that have undergone any meaningful development for quite some time)."

Does this not screw Novell?

[WindBourne]

As it is, SCO owes Novell loads of money. Can Novell stop this sale and/or get the money?

SCO used to be really good.

[Gordonjcp]

The name is pretty tarnished now, though. I wonder if there's any money in buying up the name and creating a "New SCO"?

Probably not, but I'm sure someone thinks it's worth a shot.

Tell you what, I'll give then 50 quid cash-in-hand for the rights to the name.

Golden parachute

[greg_barton]

It's a golden parachute. Follow the money.

Re:SCO used to be really good.

[BadAnalogyGuy]

York Capital Management is a hedge fund management outfit. They are not going to be breathe any life into SCO. They are going to tear it apart and sell off what they can and try to make a profit over and beyond the 30+ million they are intending to invest.

If they didn't see any upside here, they wouldn't have made the offer. You can bet SCO's got something of value that York will be able to sell off at a tidy profit.

There's probably something there

[simong]

I just hope that the bidder doesn't think that it's the IP. There is probably enough SCO support work out there to make a viable business though, if there are people who are still paying for their support.

ties to MS/Baystar?

[nietsch]

I wonder how many degrees of separation there are between this new firm and Microsoft? MS has employed some wonderfull machinations in the past to further fuel tSCOg legal battle, and now when the battle is finally lost, up comes another firm offering some golden parachutes to the management?
Somehow I remain unconvinced that those responsible will be punished. The nuclear option seems pretty good to me, but I don't think the US would appreciate a 30 mile crater where Redmond used to be.

Re:SCO used to be really good.

[Calinous]

Support contract for already installed Point Of Sale devices. This is the only SCO operation I know of, that was workable.
      They could compete against Microsoft based on price in this sector.
      There might be other places with installed SCO base - and there is money to be had from there, either from continuing support or from help with migration to another platform

Capital Management

[WibbleOnMars]

This is basically a private equity buyout. Private Equity is the big buzzword in the world of big money at the moment. What generally happens is that the buyer sees a company which it feels is underperforming and has a depressed share price, and offers a good enough price for it that the shareholders can't refuse. The money all comes from bank loans, which are secured on the company being bought -- a bit like a mortgage is secured on the house you're buying -- so as long as the bank agrees to the loan, it doesn't actually cost the buying company anything up-front. Once the purchase has gone through, they buying company needs to get the money to pay off the loan. This money comes from making savings at the company they've bought. Typically this would mean asset stripping, re-organising, selling off product lines and divisions, or whatever else it takes to make the money back. Wholesale redundancies are also almost certain. When a reasonably solid, viable company is bought out by private equity, they usually end up getting transformed into a much leaner and smaller company, and getting sold on again in the space of a couple of years. When it happens to a company that isn't solid and viable, the private equity firm will generally just sell off all the assets of the company, aiming to make a profit on the purchase price, and then quietly close down the husk that remains. This is what I predict will happen in this case. The buyer is looking at the assets -- the Unix operating system, the patents, licenses, and all the rest, and they've decided that it's worth more than $36 million. Of course, the strategy only works if there are people out there willing to buy the assets for more than $36 million. I suspect there probably are. Even with the lawsuit results, there is enough left to cherry pick. You can be pretty certain they'll get rid of the lawsuits as quickly as they can; they're paying a block of lawyer fees up front to secure the purchase, but they won't want to pay any more, as it'll eat into the profitability of their bid. The law suits would require a long-term strategy, but a buyout like this will be geared solely toward making a short-term profit. The asset management company certainly won't be buying any of their debts, so the $36 million goes to the remaining SCO company (SCO Mobile? I guess they'll rename themselves to try to get rid of the burden of the name SCO). Pays off their lawyer bills, pays off their debts to Novell and other creditors, maybe even leaves them with a few pennies to rub together at the end if they're lucky, leaving SCO Mobile as a theoretically viable (albeit not particularly valuable) company.

Re:SCO used to be really good.

[BadAnalogyGuy]

Are you listening? They are not going to run the company after the purchase. They are going to carve it up and sell off all the assets.

They are not in the business of running businesses. They buy distressed businesses at a steep discount and destroy them for a profit.

Re:Capital Management

[junklight]

The thing is SCOX has a market cap of around $5m at present. So a hostile takeover would cost considerably less than $36m. So how is this good value fo r the equity company and its investors?

A tad biased

[Anonymous Coward]

You know, it's articles like these which demonstrate why Slashdot's become less than necessary reading these days.

Whatever SCO (the company) has done to Linux, SCO's UNIX systems were alright. They weren't fashionable, but, they have a working kernel and standard user-land utilities. Obviously, the SCO IP isn't quite as fresh as it once was, but, there'd still be gems to be mined. They also (still) have a (declining, but, still present) bucket of support contracts.

In a market where Facebook (without an obvious revenue stream) is valued in the billions, you'd have to be an unbalanced zealot to suggest they couldn't raise $34M for their entire UNIX related IP collection. Sure, it's not been selling well in the last couple of years, but, you should never judge the quality of a product by the skills of the salesmen.

From Groklaw comments:

[Udo Schmitz]

User Jaywalker over at Groklaw has an interesting comment [groklaw.net]:

"JGD Management Corporation has its principal executive offices at 1118 East Green Street Pasadena, California 91106 (http://www.secinfo.com/d12TC3.v51a.htm)

If you google the address the first match is a reference to a page on Edgar which provides the Form 4 (any of you US business types know what that is?) for a comany known as Arrowhead Research Corp which has one R Bruce Stewart as its CEO and Chairman of the Board.
(http://edgar.brand.edgar-online.com/EFX_dll/EDGARpro.dll?FetchFilingHTML1?Sessi onID=T-hII2bI2EHwHrP&ID=3669175)

R Bruce Stewart founded Acacia Research Corporation in March 1991. (http://www.forbes.com/finance/mktguideapps/personinfo/FromPersonIdPersonTearshe et.jhtml?passedPersonId=927443).

Has anyone heard of Acacia Research before?

Hmmmm.

It has to be a coincidence."

The sale probably won't go through

[Anonymous Coward]

The asset purchase agreement between Santa Cruz and Novell gave Novell the right to yank back the business if Santa Cruz had a 'change of control'. That means Novell can veto the sale. In fact the clause was inserted because Novell was worried that Santa Cruz would go bankrupt.

Will the bankruptcy judge void the APA. AllParadox, a retired lawyer who has been following this closely, says that they don't do that.

So let's unwrap this

[tietokone-olmi]

The SCO thrust caught fire, blew up and is sinking at a respectable clip. Since it became obvious that this would happen (sometime in the summer), SCO's puppet masters had them "re-focus" their business into "mobile solutions". We should all know that "mobile solutions" is where shitty ideas and companies re-focus in order to perhaps get a little bit more investments in; therefore we can consider that SCO is basically a walking corpse at this moment.

This "Unix IP" sale is so that SCO can be permitted to sink and Novell & IBM may attempt to get their butter & 2K monies (as in JA I AM MADE OF) from a shell of a shitheap, if they can. Once the "Unix IP" package is moved elsewhere, SCO's puppet masters may attempt to re-do this whole operation in a few years in a more favourable legal environment and perhaps a judge that is more "reliable" (i.e. in their pocket).

There's a minor hole in this coreography though. If 6 million has been offered for the "Unix IP" parcel, then it should be obviously outside the group of stuff that SCO may hammer to get out of deep red again. The money from the sale would obviously go to pay executive salaries (some 80,000$ a month, is it?) and lawyer fees (well past 5 million US$, I reckon). I suppose we'll see whether the SCO chapter 11 trustee is in the puppeteer's pocket or not.

I must say that Microsoft planned this one out pretty well. Of course their plan relies on corruption to smooth the way so that their side can execute their moves quicker than the opposition, as always, but still.

Re:Does this not screw Novell?

[oliverthered]

If SCO owes Novell loads of money, more money than SCO is worth then why can't Novell just take over SCO?

Microsoft Stink

[canuck57]

This has Microsoft stink all over it:

http://www.google.com/search?q=microsoft+Acacia+Research&btnG=Google+Search

More ties:

[walterbyrd]

Acacia = "InterActive Group" = "Arrowhead Research" (= Msft?)

"On May 29, 2007, we [Arrowhead Research] sold to certain institutional and accredited investors an aggregate of 2,849,446 shares of common stock (the "Private Placement Shares") at a per share purchase price of $5.78, and Warrants to purchase up to an additional 712,363 shares of common stock (the "Warrant Shares"), exercisable at $7.06 per share, in the Private Placement. Two investment vehicles of York Capital Management, a stockholder holding greater than 10% of the Company's Common Stock, participated in the offering."

http://www.secinfo.com/d14D5a.u4d4r.htm [secinfo.com]

"Arrowhead Research" refers to Arrowhead Research Corporation, a Delaware corporation and formerly known as InterActive Group, Inc."

http://www.nasdaq.com/asp/symbols.asp?exchange=NGM&start=A&sort=cap&Type=0 [nasdaq.com]

"The consolidated financial statements include the accounts of Arrowhead Research Corporation (a Delaware Corporation), formally InterActive Group, Inc., and Arrowhead Research Corporation (a California Corporation), a wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
. . . .
In October 2003, in connection with an initial private placement of Common Stock, the Company [Arrowhead Research] accepted 80,255 shares of Acacia Research Corporation, valued at $500,000, and $500,000 cash in exchange for 1,000,000 units. The shares are carried on the financial statements as marketable securities. See Note 3."

http://sec.edgar-online.com/2004/05/17/0001015402-04-002107/Section7.asp [edgar-online.com]

"On May 29, 2007, we [Arrowhead Research] sold to certain institutional and accredited investors an aggregate of 2,849,446 shares of common stock (the "Private Placement Shares") at a per share purchase price of $5.78, and Warrants to purchase up to an additional 712,363 shares of common stock (the "Warrant Shares"), exercisable at $7.06 per share, in the Private Placement. Two investment vehicles of York Capital Management, a stockholder holding greater than 10% of the Company's Common Stock, participated in the offering."

http://www.secinfo.com/d14D5a.u4d4r.htm [secinfo.com]

Re:There's probably something there

[sm62704]

I just hope that the bidder doesn't think that it's the IP

I hope they do. They're vulture capitalists; they buy out companies, carve them up, and sell off the assets. When I worked at Disney in the early 80s, Reagan pushed through a huge capital gains tax cut, which was followed by an orgy of buyouts. See, the capitao gains tax is a tax on businesses that are sold. This tax is an incentive to NOT sell a company.

Vultures like this got filthy rich, while working people suffered. One of these sleazeball outfits tried to buy Disney to sell its real estate and IP, etc. All of us poor working schmucks got our hours cut back from 40 a week to 30 a week so the company (whose upper management never lost a dime) fought the buyout.

These companies are pure evil. Anything bad that happens to them causes me to heartily cheer.

-mcgrew

Re:Does this not screw Novell?

[Spleen]

Novell likely doesn't ever expect to collect the debt owed to it by SCO. They've been using it as a tool to put an end to SCO's bully tactics. Novell may not have any desire to take over the actually business, but they could make a business from taking over the product and transitioning the customer base to their SuSE offering. In turn they could release the product source (as they would own it now) to the community. Linux developers could then benifit from any code that might be worth a damn within the product. I think it would be ironic that the very code SCO swears was stolen for the linux kernel, would be completely fair game for the kernel developers.

Re:Does this not screw Novell?

[Just Some Guy]

I have a feeling that a few years from now the YCM-SCO example might become standard case study in business schools.

I suspect you're right. The biggest question is whether it will be as an example or as a warning.