BayStar Says Its Investment Hinges on Changes at SCO

BayStar Capital Management LLC has finally told The New York Times what its problems are with The SCO Group Inc. But according to SCOs director of corporate communications, Blake Stowell, BayStar still hasnt told SCO why its pushing to redeem its 20,000 shares of SCOs series A-1 convertible preferred stock, thus getting back its $20 million investment.

But BayStar spokesman Bob McGrath insists that, "For some time now, since we invested in SCO in October, weve seen things that weve been concerned about, and weve brought these concerns to SCOs board both in writing and verbally."

BayStar invested in SCO, McGrath said, because the Larkspur, Calif.-based private investment firm "believed, and still believes, that SCOs intellectual property assets are valuable and that there is great potential for these to be monetized for its shareholders."

"They have some valid claims, and with David Boies [SCOs lead outside attorney in its suit against IBM] involved in the execution of those claims, we believe that SCO can win."

Specifically, McGrath said, SCO must change three things for BayStar to not attempt to pull its investment out of the company. First, "the management team at SCO must be strengthened and enhanced with executives who are experienced in litigation issues and in dealing with those issues from a public-company standpoint to get the best possible return."

When asked point-blank if BayStar had anyone in mind that it would like to see in charge of SCO or anyone in particular it would like to see removed, McGrath replied, "No."

SCOs Stowell said, "The management team in place has the full confidence of our board members, our employees and many of our shareholders. I dont foresee our management changing anytime."

McGrath went on to say, "We believe SCO must focus its resources. Were not an insider, weve been learning about SCO in the past few months and now weve reached the conclusion that SCO should focus its resources on its most valuable asset: its intellectual property claims.

"SCO should not be spending resources, its time and money, on its other businesses, such as OpenServer and UnixWare. The return there, both now or in the future, will not give enough value for return to stockholders and investors."

In The New York Times story, Lawrence R. Goldfarb, managing partner of BayStar, characterized SCO as spending too much time on debating open source with Linux advocates instead of focusing all of its energy on the litigation.

Finally, McGrath said BayStar is not happy with SCOs communications. "Were not sure what the business rational is for their ongoing communications, given that we think they should be focusing on litigation." He added, "On the investor side, we havent seen good communications with shareholders."

Stowell said he disagrees. "BayStar had access to all the same numbers and information that everyone else has. The agreement in early February to me showed that they had full knowledge of everything that was taking place in our company."

Next Page: Analysts say BayStars memo may have sought more control, not money.