SCO Looking To Ditch Actual Business To Try To Keep Lawsuit Going

It what’s beginning to look like a never ending story, SCO is now potentially looking to sell off its actual businesses in order to keep the lawsuit campaign going. From the article (via Techdirt):

The embattled SCO Group Inc. is proposing to auction off its core products and use proceeds to continue its controversial lawsuits over the alleged violations of its copyrights in Linux open-source software.

The Lindon company has filed a new reorganization plan with the federal court in Delaware where it sought bankruptcy protection from creditors after an adverse ruling in the Linux litigation.

If approved by a bankruptcy judge, the plan could mean SCO’s server software and mobile products lines are owned by other parties while SCO itself remained largely to pursue the lawsuits under the leadership of CEO Darl McBride.

“One goal of this approach is to separate the legal defense of its intellectual property from its core product business,” McBride said in a letter to customers, partners and shareholders.

Jeff Hunsaker, president and COO of The SCO Group, said the litigation had been distracting to the company’s efforts to market its products.

“We believe there’s value in these assets and in order for the business to move forward it’s imperative we separate it from our legal claims and we allow our products business to move forward,” he said Friday.

“We’ve seen interest from a number of investment groups that believe in these assets, believe in the value of this business, believe in the installed base of customers throughout the world,” he said.

SCO’s plan shows it could sell off its entire product line in one package or sell them separately. If buyers do not emerge, it will continue to market the products.

IBM and Novell declined to comment on the plan. Both have an opportunity to make objections in court.

I agree that it’s amazing that after losing pretty much every aspect of this campaign from the very beginning, that folks at SCO still think it’s worth pursuing. I read this announcement as “having products to sell has been distracting to the company’s efforts to litigate”, but like many I’m a bit cynical about the situation at this point. With such a low market cap, it’s possible that one of the remaining customers would be interested in picking up the products simply to save on licensing costs. That’s an outside shot IMHO though, since I can’t see a current customer who would be interested in running that kind of business. For some reason, I’m actually a bit intrigued to see if someone does pick up the shattered pieces. Hopefully at that point the litigation half can finally go away, as it should have quite some time ago.

–jeremy

Judge Kimball Rules on SCO v. Novell

It looks like Judge Kimball has finally issued a ruling on SCO v. Novell. From the article:

OK. I’ve read it now once through, and the big picture is this: Judge Kimball did not change anything in his August 10th order, which I was afraid might happen. He could have, had he heard anything that he didn’t know when he made that order. So, SCO breached its fiduciary duty to Novell, converted funds, and so it has to pay. That is ironic, in that this case started with SCO accusing Novell of slander of title, and asking for millions in damages. Instead it has to *pay* Novell millions.

However, Judge Kimball accepted SCO’s argument that UnixWare is the latest version of UNIX and that it was the foundation of all the other agreements, even though SYSV was also involved, or so SCO thought. He accepted SCO’s argument that if SCO was wrong about owning the copyrights, and it was, then it’s too bad for the licensees — they just got less than they thought they were paying for, and that is a matter for them to work through with SCO. So if EV1, for example, wanted its money back, or part of it, it would have to sue SCO.

I think this is an appealable issue for Novell, but I don’t know if they will bother. This was all about money, this trial, and very narrowly about whether SCO owed Novell anything from the Sun and Microsoft and SCOsource licenses. The rest was decided already on August 10th. And SCO doesn’t have much money left, if any, so I would guess that if SCO appeals, Novell will raise issues it certainly can in this new order. And it’s a bit hard to fit SCOsource into the APA, since it was just a strange and vague bird. But if SCO doesn’t — and to my mind the order seems designed to discourage it, since if they do appeal, they risk being found liable for even more money than now ordered — Novell then has to figure out if it is worth it.

For its part, SCO is attempting to spin this as somewhat positive:

In an e-mailed statement today, SCO described the ruling as “an important step in (its) ability to pursue the appeals to try to get all of (its) claims heard by a jury as soon as possible. We are pleased, however, that the court agreed that Novell is not entitled to anywhere near the more than $20 million dollars it was seeking.”

“Importantly, the court ruled that Novell has no right to any royalties from UnixWare or OpenServer sales by SCO, which is where the bulk of SCO’s revenue is earned,” SCO said in the statement. “This is also an important step forward in the capitalization and reorganization plan for SCO that will allow us to emerge from Chapter 11. We continue to disagree with the premise of this trial and believe that Novell is not owed anything, but that they have interfered with SCO’s UNIX rights.”

The company is reviewing the ruling by Judge Kimball with its attorneys and will be assessing the next steps over the coming days and weeks.

Realistically, SCO is probably going to appeal and it looks like they are attempting to go for a jury case. I’m not sure how much cash they have on hand, but it looks like because they were acting as an agent for what was always Novell money, the full amount should be given to Novell before any further creditors during bankruptcy. With the IBM ruling not handled down yet, things don’t bode well for SCO. Whether someone will pick up the carcass or they will just go away remains to be seen.

–jeremy

SCO Plans Rebound Thanks to $100M Lifeline

I have no idea how, but it looks like SCO managed to get a $100M bid that will take the company private. From the article:
Embattled Unix vendor SCO may get a new lease on life, thanks to a $100 million infusion aimed at helping it emerge from bankruptcy and pursue its controversial legal claims.

The financing comes from Stephen Norris Capital Partners (SNCP), which will take a controlling interest in SCO as part of the deal.

“Not only will this deal position us to emerge from Chapter 11, but it also marks an exciting future for our business,” said Jeff Hunsaker, the company’s president and COO of SCO Operations, in a statement.

“This significant financial backing is positive news for SCO’s customers, partners and resellers who continue to request upgrades and rely upon SCO’s UNIX services to drive their business forward,” he said.

According to a statement from the company, SNCP already has a business plan for SCO that includes pursuing its legal claims.

Unless the Norris in SNCP is Chuck, I can’t see how this will help. SCO has a dying operating system on its hands along with two lawsuits that are going absolutely nowhere. I’ve not seen too much recently about their mobile offerings either. The previous bid of $36M by York seemed high, but $100M for SCO seem ludicrous to me. One has to wonder if McBride will remain with the company if this deal closes. There is a possible silver lining here though. If Novell does win its case against SCO, now there may actually be some assets for them to take.

–jeremy

No More SCOX

It looks like SCO has finally been delisted from the Nasdaq. The ticker is now SCOXQ.PK on the OTC board. From the “SCO Receives Nasdaq Notice Letter” press release:

LINDON, Utah, Dec. 27 /PRNewswire-FirstCall/ — The SCO Group, Inc. (“SCO”) (Nasdaq: SCOX – News), a leading provider of UNIX software technology and mobile services, today announced that it received a Nasdaq Staff Determination letter on December 21, 2007 indicating that as a result of having filed for protection under Chapter 11 of the U.S. Bankruptcy Code, the Nasdaq Listing Qualifications Panel has determined to delist the company’s securities from the Nasdaq Stock Market and will suspend trading of the securities effective at the open of business on Thursday, December 27, 2007.

It’s been a wild and crazy ride, that’s for sure. While it’s not completely over yet, this surely marks the beginning of the end. It’s interesting to see that they still consider themselves a “leading provider of UNIX software technology”. If they focused on UNIX software technology instead of absurd litigation in the first place, it’s very possible this letter would never have been delivered.

–jeremy

SCO still hanging on

After filing for Chapter 11, SCO may have found a buyer for its UNIX operations. From the article:

While still fighting in the courts and fresh from filing for Chapter 11 bankruptcy protection last month, The SCO Group could soon be selling its steadily-declining Unix business.

In a filing in US Bankruptcy Court in Delaware, the Lindon, Utah-based company said it had received a “potential” $US36 million offer for its Unix business from JGD Management, an umbrella business of New York-based investment firm, York Capital Management. The filing has been posted on the Groklaw.com website, which has been tracking the legal records of the ongoing lawsuits between SCO, IBM, Novell and others. In it, SCO reports that the offer includes money for its Unix business, litigation claims and for litigation expenses.

The bid is subject to approval by the bankruptcy court, according to the filing, and competitive bids could still be accepted from other potential buyers.

SCO filed for Chapter 11 bankruptcy reorganization last month as it began seeking ways to stay in business amid mounting expenses and several legal rulings that have hurt its legal fights with IBM and Novell.

If SCO gets out of the Unix business, it would continue solely as a mobile application platform vendor, which it has been working to become over the last several years.

York is a large hedge fund-like capital management company, so at first I didn’t think there was anything odd about this. It was probably an LBO in which the company thought it could squeeze some value out of a product that had been neglicted. Fairly popular stuff these days. But, it gets odd from here. As noted on Groklaw:

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 company 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?SessionID=T-hII2bI2EHwHrP&ID=3669175)

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

Yes, that would be the same Acacia that is currently suing Red Hat and Novell. Quite some coincidence. I haven’t had a chance to personally verify all the information from the Groklaw post, but the links are all there for you to do so. If you’d like to do some additional research:

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

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

–jeremy

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