Tuesday, October 23, 2007
10/23 SNR
It's been a couple of weeks since the last SNR post. My pitiful excuses will have to wait until tomorrow, though, because right now we've got some big news to cover. Hell froze over today, and in related news, SCO has an actual "buyout" offer on the table. I put "buyout" in quotes because it's not quite that simple. York Capital doesn't want the whole company, just certain assets. They're buying SCO's business units, but it doesn't look like that's their real angle. Despite all that blather from MOG about SCO "modularizing", York isn't the eager Me Inc. bagholder, er, buyer we were promised. I can't really fault MOG on that for once, though. I think everyone figured that was the one appendage SCO could slice off and sell successfully. I know that's what I expected to see. But no, the tea leaves (i.e. the proposed APA) suggest York wants into the Linux litigation business. Seriously. You're probably going, wait, there is no Linux litigation business. SCO's claims were debunked years ago, SCOSource withered on the vine for lack of customers, even their media shills have abandoned them at this point, and nobody takes them seriously anymore. What on Earth could York possibly be buying? Unix? I can't see them honestly trying to turn the Unix business around, I mean, nobody's that stupid. And Me Inc., a valuable asset? It is to laugh. All SCO has left to offer is a pile of used lottery tickets, none of them winners, and somehow they hooked themselves a buyer. How is this possible?
The first thing to realize is that investment firms see the world differently than humans do. If you're a fund manager, paying $16M for something that almost certainly doesn't exist may actually seem like a good deal. Fund managers are gamblers by nature, and if you dangle a cheap lottery ticket in front of enough of them, you're bound to get a few bites. It worked on Baystar, and RBC, and Renaissance, and all the others. The difference is that York isn't content to let SCO play the Linux lottery on their behalf. They'd like the right to do it themselves, via a newly constituted entity. I suspect said entity ("NewNewSCO") will operate as a "pure play" IP troll, once they've laid off SCO's remaining engineers, sales & marketing people, and other nonessential staff. Meanwhile, "OldNewSCO", now asset-free, finally becomes the publicly traded lawsuit Baystar wanted them to become several years ago. So instead of one pack of litigious bastards, there'll be two. And I suppose when they're on the brink of losing in court, they'll declare bankruptcy again and undergo another mitosis, and there'll be four, and so on.
Speaking of multiple entities: If I'm reading the deal right, only the York entity will get to call itself SCO (assuming it wants to), since the proposed APA includes trademarks. I wonder if any of the $16M is earmarked for the name, or Darl's tossing it in as a freebie? If York gets all the trademarks, I suppose they could call the new firm Caldera instead, or maybe Vultus, names that are nowhere near as sullied as SCO's, at least not yet. I kind of hope they go with "Vultus", because it's a truly stupid name.
Back in the Baystar era SCO refused to hollow itself out and become a pure lawsuit factory, but now they're all hot for it, and they're proposing an "emergency" fire sale schedule, with an auction to be held December 5th. I think they're betting there won't be any other bidders on this dubious bill of goods. And if anyone else bids, and York loses the auction, they get a nice fat check for at least $780k. This might be a good time to point out that'd be $780k of Novell's money, just so it's clear what's going on here.
So the deal goes on about how each company will share in the other's good fortune if either hits the jackpot, and York proposes to extend a $10M line of credit to SCO. And exchange for that line of credit, York gets to muscle its way to the front of SCO's long line of creditors. Cozy! Naturally SCO, as the distressed party in the deal, has certain unfavorable terms to swallow. First, York doesn't want to buy the Novell and IBM suits. And really, why would they? I certainly wouldn't. Likewise the ongoing Caldera IPO litigation, the "former Indian distributor" case, and all other non-Linux cases still belong to SCO. If I'm reading things right, York gets the AutoZone and possibly the Red Hat cases, and the right to file additional frivolous Linux lawsuits, and (I think) the right to sue over Me Inc. too. My guess is that the last bit is what York really wants. Mobile phone companies have deep pockets and seemingly prefer to pay up instead of fight, so it just might pay to go around filing groundless lawsuits against them. Besides, of all those lottery tickets York wants to buy, Me Inc. is the only one SCO hasn't scratched yet.
This would all make a lot more sense if York was a newly minted bagholder with no prior history with SCO. But as the ever-relentless Panglozz points out, they've had money in SCO since 2004, and even had dealings with Rich Emerson, the M$ guy who arranged the Baystar deal. I'm not saying I see the black hand of Redmond behind the York deal, not yet anyway, but I do think it all looks a bit odd.
Speculating about who's really writing the checks may be a moot point. I just can't see the deal going through as it's currently worded. First, SCO wants to sell the Unix biz, with York I suppose becoming Novell's new agent, for the same 5% cut of the take, all without Novell's consent. Meanwhile, Novell gets to continue suing the eviscerated, asset-stripped husk of SCO. I have this funny feeling they won't accept that sort of arrangement. SCO also proposes to sell the right to file new Linux lawsuits. There's no way for any potential bidder to know what this "asset" is worth at present. I don't see how they could reasonably auction it until certain PSJ's in the IBM case are sorted out. If we're lucky, IBM might "helpfully" point this out and talk the court into unstaying, say, CC10 for example. All in the interest of expediting the BK proceedings, of course.
So in the end, this proposed deal just might turn out to be a good thing. Just not for SCO. The deal's weird enough that I'm going to have to stare at it a while and try to imagine what loopholes and sneaky tricks they've hidden inside of it. And I hope people who actually understand this stuff will do the same. It's a hell of a strange way to carve a turkey, that's all I can say.
The first thing to realize is that investment firms see the world differently than humans do. If you're a fund manager, paying $16M for something that almost certainly doesn't exist may actually seem like a good deal. Fund managers are gamblers by nature, and if you dangle a cheap lottery ticket in front of enough of them, you're bound to get a few bites. It worked on Baystar, and RBC, and Renaissance, and all the others. The difference is that York isn't content to let SCO play the Linux lottery on their behalf. They'd like the right to do it themselves, via a newly constituted entity. I suspect said entity ("NewNewSCO") will operate as a "pure play" IP troll, once they've laid off SCO's remaining engineers, sales & marketing people, and other nonessential staff. Meanwhile, "OldNewSCO", now asset-free, finally becomes the publicly traded lawsuit Baystar wanted them to become several years ago. So instead of one pack of litigious bastards, there'll be two. And I suppose when they're on the brink of losing in court, they'll declare bankruptcy again and undergo another mitosis, and there'll be four, and so on.
Speaking of multiple entities: If I'm reading the deal right, only the York entity will get to call itself SCO (assuming it wants to), since the proposed APA includes trademarks. I wonder if any of the $16M is earmarked for the name, or Darl's tossing it in as a freebie? If York gets all the trademarks, I suppose they could call the new firm Caldera instead, or maybe Vultus, names that are nowhere near as sullied as SCO's, at least not yet. I kind of hope they go with "Vultus", because it's a truly stupid name.
Back in the Baystar era SCO refused to hollow itself out and become a pure lawsuit factory, but now they're all hot for it, and they're proposing an "emergency" fire sale schedule, with an auction to be held December 5th. I think they're betting there won't be any other bidders on this dubious bill of goods. And if anyone else bids, and York loses the auction, they get a nice fat check for at least $780k. This might be a good time to point out that'd be $780k of Novell's money, just so it's clear what's going on here.
So the deal goes on about how each company will share in the other's good fortune if either hits the jackpot, and York proposes to extend a $10M line of credit to SCO. And exchange for that line of credit, York gets to muscle its way to the front of SCO's long line of creditors. Cozy! Naturally SCO, as the distressed party in the deal, has certain unfavorable terms to swallow. First, York doesn't want to buy the Novell and IBM suits. And really, why would they? I certainly wouldn't. Likewise the ongoing Caldera IPO litigation, the "former Indian distributor" case, and all other non-Linux cases still belong to SCO. If I'm reading things right, York gets the AutoZone and possibly the Red Hat cases, and the right to file additional frivolous Linux lawsuits, and (I think) the right to sue over Me Inc. too. My guess is that the last bit is what York really wants. Mobile phone companies have deep pockets and seemingly prefer to pay up instead of fight, so it just might pay to go around filing groundless lawsuits against them. Besides, of all those lottery tickets York wants to buy, Me Inc. is the only one SCO hasn't scratched yet.
This would all make a lot more sense if York was a newly minted bagholder with no prior history with SCO. But as the ever-relentless Panglozz points out, they've had money in SCO since 2004, and even had dealings with Rich Emerson, the M$ guy who arranged the Baystar deal. I'm not saying I see the black hand of Redmond behind the York deal, not yet anyway, but I do think it all looks a bit odd.
Speculating about who's really writing the checks may be a moot point. I just can't see the deal going through as it's currently worded. First, SCO wants to sell the Unix biz, with York I suppose becoming Novell's new agent, for the same 5% cut of the take, all without Novell's consent. Meanwhile, Novell gets to continue suing the eviscerated, asset-stripped husk of SCO. I have this funny feeling they won't accept that sort of arrangement. SCO also proposes to sell the right to file new Linux lawsuits. There's no way for any potential bidder to know what this "asset" is worth at present. I don't see how they could reasonably auction it until certain PSJ's in the IBM case are sorted out. If we're lucky, IBM might "helpfully" point this out and talk the court into unstaying, say, CC10 for example. All in the interest of expediting the BK proceedings, of course.
So in the end, this proposed deal just might turn out to be a good thing. Just not for SCO. The deal's weird enough that I'm going to have to stare at it a while and try to imagine what loopholes and sneaky tricks they've hidden inside of it. And I hope people who actually understand this stuff will do the same. It's a hell of a strange way to carve a turkey, that's all I can say.
By brx0 @ 9:55 PM 
