Hard to Force Redemption

By Steven Vaughan-Nichols  |  Posted 2004-04-19 Print this article Print

As for BayStar getting its stock redeemed, Cornett said he isnt optimistic about the companys chances if SCO fights back. "Its very hard for a company to force redemption. They know that," he said, adding that he thinks its "no more than a 50/50 chance that BayStar could get an injunction to free its money."

If BayStar does get its shares, though, Cornett said he expects the Royal Bank of Canada (RBC), which also financed SCO with $30 million as part of the package with BayStars $20 million, to "get out."

The RBC, along with BayStar, already got SCO to restructure the deal once before in December to prevent SCO from being sold without first obtaining their consent. The two investment houses did this in response to a deal by which a 20 percent contingency fee of any proceedings from the sale of the company would be awarded to SCOs law firm, Boies, Schiller & Flexner LLP.

But for now, bank spokesman Chris Pepper said, "We are aware of what BayStar is doing, and were reviewing our options."

Cornett said, "Ive seen private equity investment do this kind of maneuver to try for better terms or to get out. If they do intend to get out and get their money back, they will face a court battle. Its ironic—SCO will use the money they received from BayStar to defend themselves from BayStar."

Dan Kusnetzky, IDC vice president of system software, said he thinks SCO "will find itself embroiled in another legal contest." "As an industry analyst, SCO needs customers, particularly big ones, and [it has sent] 1,500 letters threatening legal action, which is not a way to engender friendship," Kusnetzky said. "SCO also need hardware backers, and theyve sued IBM, and HP has set up legal protection for its Linux customers against SCO legal actions. Theyve upset many customers and many of their partners, and thats not the equation for success. "In the long run, if you look at the stream of revenue shrink and the cost of litigation rise, its hard to see how SCO can long continue."

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Steven J. Vaughan-Nichols is editor at large for Ziff Davis Enterprise. Prior to becoming a technology journalist, Vaughan-Nichols worked at NASA and the Department of Defense on numerous major technological projects. Since then, he's focused on covering the technology and business issues that make a real difference to the people in the industry.

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