Canopy Coup? SCOs Parent Dumps Top Execs

By Steven Vaughan-Nichols  |  Posted 2004-12-23

Canopy Coup? SCOs Parent Dumps Top Execs

Two top executives of The Canopy Group, the parent company of Unix firm The SCO Group Inc., have unexpectedly left the firm.

SCO spokesperson Blake Stowell confirmed that Canopy had ousted Ralph Yarro, president, chairman and chief executive of the Lindon, Utah-based business, and Darcy Mott, chief financial officer of the company. He was unable to explain why the pair of veteran Canopy managers had been let go. "I honestly dont know," he said. Calls to Canopy were not returned.

Yarro was a graphic artist who worked for Ray Noorda, founder of Novell Inc. and Canopy. Yarro gained Noordas trust and rose to Canopys top position in February 1996. Mott had served as Canopys vice president, treasurer and CFO since May 1999. Before joining Canopy, Mott worked as vice president and treasurer for Novell.

Yarro has been replaced—at least for now—by Bill Mustard. Mustard was most recently a managing director for Smooth Engine, a senior executive consulting firm.

According to a report in The Salt Lake Tribune, which broke the story, Mustard has been meeting this week with management of Canopys subsidiaries, including SCO CEO Darl McBride.

Many people are wondering what effects, if any, these upper management changes will have on SCO and its Linux/Unix-related lawsuits with IBM and other companies.

Stowell said there would be "no changes at this time. Ralph Yarro remains our chairman, Darcy Mott remains a board member, and Canopy remains a majority shareholder of SCO."

Analysts, however, see the potential for change with these executive moves.

"Canopy Group has stakes in a number of Utah-based companies besides SCO. The personnel changes at Canopy Group are not by itself indicative of the potential outcome of SCOs lawsuits," said Stacey Quandt, senior business analyst with the Robert Frances Group.

However, she also pointed to SCOs dismal fourth-quarter results and suggested that the revenue loss could shake things up further.

"It is worth noting that SCOsource [SCOs Unix intellectual property division] revenue has declined significantly from a year ago. If SCO is unsuccessful in its efforts to sue IBM and Novell, the share price of SCO stock will fall further and then a shareholder lawsuit becomes a strong possibility," Quandt said.

Click here to read about Novells latest move in its ongoing IP war with SCO over who owns Unix.

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Laura DiDio, Yankee Group senior analyst for application infrastructure and software platforms, also doesnt see clearly what these management changes will mean for SCO.

"Truthfully, no one knows what the coup at Canopy augurs," DiDio said. "What is clear to me, is that Ray Noordas hand-picked longtime associates Ralph Yarrow and Darcy Mott are out at Canopy and presumably off SCOs board—or at least neutralized in those positions—meaning that the old familial ties forged at Novell have been cut."

DiDio suggested that new Canopy CEO Mustard will have a tough road ahead. "[He] is not going to have the same loyalty or sentiment in his dealings with either Canopy or SCO as Yarrow and Mott. Smooth Engine … provides both interim and permanent executive replacements, [so] Mustard himself may be an interim CEO—we dont know," she said.

Like Quandt, DiDio also indicated that SCOs latest earnings report could serve as an impetus to settle outstanding lawsuits.

"Given SCOs recent financials, which showed they only got $120,000 in licensing revenues, down from $10 million the year before, [and] a net loss in earnings and revenue that declined from over $25 million to $10 million, I think its safe to assume that the new executive management will move quickly to shake things up and do a midcourse correction. So there could be a settlement in the offing… if IBM is willing to deal," she said.

On December 10, SCOs officers entered into Change in Control Agreements. In this agreement, the officers, including CEO McBride, CFO Bert Young and Christopher Sontag, senior vice president and general manager, promised to "not voluntarily leave the employ of the Company" in the event of a change in ownership.

The agreement further states: "If the Officer is still employed by the Company when a Change in Control occurs, any stock, stock option or restricted stock granted to the Officer by the Company that would have become vested upon continued employment by the Officer shall immediately vest in full and become exercisable."

Stowell characterized this agreement as being "similar to the poison pill arrangement" in the event of a hostile takeover. The Canopy management change, however, would not trigger this agreement.

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