| What happened to the SCO/York deal? |
Nov. 21, 2007
Earlier this week, it seemed that the only thing between York Capital buying SCO was the U.S. Bankruptcy Court in Delaware turning the proposed sale down. Then, in a surprise move on Nov. 20 SCO withdrew its emergency motion asking the court to allow it to sell its assets to York. The question of the day: why?
The deal that York, a New York-based private investment firm, was offering would have paid up to $36 million for SCO's properties. Only $10 million of the deal would have been in cash. SCO would also have gotten a $10 million line of credit to use in its Novell and IBM court battles. If SCO/York actually won any money from its suits, SCO would only get 20 percent of any court-ordered awards up to $10 million. Finally, SCO gets up to $6 million from any joint sales with York of its mobile software lines, Me Mobile and HipCheck.
For a company with a current, Nov. 21, market cap of $4.5 million; the threat of not one, but two Nasdaq delisting notices, and what appears to be certain defeat ahead of it in the last stages of its Novell lawsuits in the U.S. District Court in Utah, the York deal would seem to be too good to be believed. Maybe it was too good to be believed.
Novell and IBM had both, needless to say, filed objections to SCO selling out to York. After all, from where these companies sit, SCO is trying to sell assets that belong to them, not SCO. I doubt that has anything to do with SCO's decision to pull back from the York purchase agreement. I mean, really, when did SCO last pay attention to what IBM and Novell wanted?
While I've been unable to reach SCO on Nov. 21, the day before Thanksgiving, I think that after looking more closely at the deal, SCO has found enough poison in it to say, "Thanks, but no thanks."
If you look closely at York's proposed purchase agreement, you'll see that while SCO's Novell and IBM lawsuits will go on, the company itself, its shareholders and executives have no such assurance.
As written, SCO, not York, takes the financial risks in continuing the Novell and IBM lawsuits; SCO is completely hamstrung from reorganizing or really doing anything with its business except for continuing its lawsuits. Lawsuits, I might add, which even if by some miracle they won, the bulk of the spoils would go to York, not SCO executives or Ralph Yarro III, SCO's chairman, largest single stockholder and the person who, more so than anyone else, is behind SCO's decision to start SCO's descent into Unix and Linux litigation hell.
SCO, as I mentioned yesterday, had already been offered a chance to make a similar, but far sweeter deal by BayStar Capital back in 2004. SCO turned it down then because, when all was said and done, SCO wanted to control its own destiny, not BayStar then, and not York now.
It does make some sense if you think about it from an SCO management point of view. They have suffered with being one of the most hated companies in IT history, they have fought on and on in what almost everyone has agreed is a hopeless cause, and now York wants to move them out of the picture?
SCO to York: "I don't think so."
If there is anything to be won here by SCO--and remember, just by offering this deal York has encouraged this forlorn hope--SCO's top brass wants more of it than York is willing to offer. Besides, if SCO does finally go down to defeat, I think SCO's generals would rather still be in charge, still trying to snatch victory from the jaws of defeat, rather than be sitting on the sidelines.
Mind you, if York comes back with a better deal--SCO asked the Bankruptcy Court to set aside its emergency motion without prejudice so SCO could propose a revised York bailout deal--SCO may yet take York's money. But, if York doesn't come through, well, SCO has always shown that it's been willing to go its own way, and if that means continuing its war against Linux and Unix on its own, then so be it.
Steven J. Vaughan-Nichols
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