What's Behind the SCO Buyout

Why would anyone pay $100 million for a company in bankruptcy and with a collapsing business and a total worth, including selling the furniture, of about $5 million?

If I had a $100 million lying around, I really think I could find a better investment for my money than buying SCO. I could invest in, say, high-quality stocks, bonds, gold, New Orleans real estate, collectable Pez containers or, just the other day, I got this interesting investment opportunity from someone whose wealthy husband recently died of esophageal cancer and needs to transfer 500,000 English pounds from Nigeria to the United States.

Seriously, how does Stephen Norris & Co. Capital Partners and its Arabian oil billionaire friends think they're going to get any return on their investment?

Well, first, they're not actually putting in $100 million in cash upfront. The proposed SNCP/SCO deal, as laid out to the U.S. Bankruptcy Court in Delaware, has SNCP paying only $5 million for a new Series A Preferred stock. This new series can be converted into 51 percent and 85 percent of SCO's equity, depending on the amount drawn under the Debt Financing.

Notice those last words: "Debt Financing"? What SNCP is really offering SCO is "a five-year non-revolving credit line [of up to $95 million] and bear a high but appropriate rate of return (LIBOR (London Interbank Offered Rate) plus 17%), reflecting the risks of this investment commitment and an commensurate rate of return. The Debt Financing shall be secured by all of the assets of SCO, including all of its present and future litigation claims."

There are, at my last count, four different LIBORs. Presuming they mean the one-year LIBOR, SCO would be paying 19.78 percent interest if the deal went through today. With interest rates like this, I'm none too sure that the Bankruptcy Court will let SNCP buy up SCO.

If SCO is bought up, the company has to use this money for the "primary purpose and intended results of the Plan, and the financing commitments provided under the MOU (Memorandum of Understanding) is to encourage and promote an early and favorable resolution of the Novell/M Litigation. Notwithstanding the August 2007 interim ruling by the Utah District Court in the Novell Litigation, SCO believes it has an excellent chance to prevail in the Novell/ IBM Litigation, including potential for an award of substantial damages in its favor should SCO prevail."

In English, what they're talking about is we give you $5 million, we loan you up to $95 million, and you're to spend that money on trying to beat the brains out of Novell, and then IBM, in court.

What rock have these people been under? SCO has never been able to come close to proving any of its claims about Unix IP (intellectual property) in Linux in court. And, besides, that August decision they are talking about? It stated that Novell, and not SCO, owned Unix's IP anyway.