BayStar settles differences with SCO
Published: 02 Jun 2004 09:00 BST
BayStar Capital, the firm that arranged a $50m (£27m) 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 $40m, 80 percent of the original investment made in October along with a co-investor, the Royal Bank of Canada. But through an agreement announced on Tuesday and expected to close by the end of July, SCO will buy those preferred shares for $13m and 2.1 million shares of common stock -- shares worth about $10.1m at Tuesday's closing price of $4.81.
The agreement removes some uncertainty from SCO's ability to pay for its expensive but controversial legal case against Linux, which is a popular operating system that SCO argues violates Unix copyrights it claims to own. Companies that 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 came 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 $37m with which to defend its intellectual property," spokesman Blake Stowell said.
The move is the latest chapter in SCO's tangled financial dealings. In May, the Royal Bank of Canada, sold $20m of its $30m in preferred shares to BayStar and converted the remainder to common stock.
The BayStar agreement 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 with the preferred shares are a preference to get $40m of SCO's assets if the company were to be 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 10 June, the company said.
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