June 1, 2004 8:00 PM PDT

SCO buyout settles BayStar investment spat

BayStar Capital, the firm that arranged a $50 million investment in the SCO Group but then sought to get its money back, has settled its disagreement with a deal to sell its preferred shares to SCO.

BayStar currently has preferred shares worth $40 million, 80 percent of the original investment made in October along with a co-investor, the Royal Bank of Canada. But through an agreement announced Tuesday and expected to close by the end of July, SCO will buy those preferred shares for $13 million and 2.1 million shares of common stock--shares worth about $10.1 million at Tuesday's closing price of $4.81.

The agreement removes some uncertainty about SCO's ability to pay for its expensive but controversial legal case against Linux, a popular operating system that SCO argues violates Unix copyrights it claims to own. Companies SCO has sued, including IBM, AutoZone and earlier Unix owner Novell, are fighting the case.

BayStar didn't immediately respond to requests for comment, but in a statement, managing partner Larry Goldfarb reversed earlier criticism of SCO that had come on the heels of the investment fund's request to retrieve its money.

"After productive and substantial discussions with SCO's management team, board of directors and legal team, BayStar is extremely satisfied with SCO's current operating and cash management plans, new initiatives, management of the litigation, and plans for improving its business going forward," Goldfarb said in the statement. Previously, BayStar had demanded SCO replace top management, focus on its legal claims and scrap its Unix products business.

SCO, too, expressed satisfaction with the agreement. "We have an investor that is publicly being supportive of us who was previously calling into question something, and SCO still has $37 million with which to defend its intellectual property," spokesman Blake Stowell said.

The agreement comes a month after the Royal Bank of Canada sold $20 million of its $30 million in preferred shares to BayStar and converted the remainder to common stock.

The BayStar arrangement also puts some power back in SCO's hands because BayStar will give up rights that came with the preferred shares.

Among the preferred rights BayStar will give up are a preference to get $40 million of SCO's assets if the company is liquidated, effective veto power over some settlements of SCO's legal actions, and dividend rights.

As a result of the change, SCO postponed its earnings report from Wednesday to June 10, the company said.

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Let me get this straight
Their 2 biggest investors took massive losses to dump their prefered stock, SCO is loosing money yet has to pay millions out to purchase the stock, and this is great news for SCO. Actually, by dumping their prefered stock, the investors get some cash back in return for the claim of $40 million against any assets that may be left after IBM, AutoZone, Daimer/Chrysler and Red Hat claim their spoils when SCO tanks.
Posted by fullewr (12 comments )
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