SCO investor demands changes or money back
Friday, April 23, 2004 Posted: 1:35 PM EDT (1735 GMT)
SAN FRANCISCO, California (AP) -- An investment firm threatening to withdraw its
financial support of SCO Group Inc.'s Linux licensing battle wants the company
to shake up its management and sharpen its focus on the potentially lucrative
legal fight.
BayStar Capital Management LLC believes SCO needs to hire executives with more
savvy about intellectual property cases and spend less money on its Unix
products, BayStar spokesman Bob McGrath said.
McGrath said the misgivings about SCO's management and direction prompted
Larkspur, California-based BayStar to demand repayment of a $20 million loan
that's helping the company pay its mounting bills as it sues several major users
of Linux, alleging the operating system infringes on its Unix license.
BayStar notified Lindon, Utah-based SCO that it wanted the money back in a terse
notice delivered last week, but the investment firm hadn't publicly discussed
the reasons underlying its action until Wednesday. The firm aired its grievances
on the same day SCO announced the hiring of a new chief financial officer, with
Bert Young replacing Bob Bench.
Without providing specifics, McGrath said BayStar wants to see more extensive
management changes.
Although BayStar has formally requested its money back, "we remain open to
alternative resolutions that are done in the best interests of all
shareholders," McGrath said. "We continue to see strong value in [SCO's]
intellectual property."
An SCO official said BayStar still hasn't responded to the company's repeated
efforts to discuss the falling out. "We are certainly interested in working out
our differences," SCO spokesman Blake Stowell said.
SCO's chief executive is Darl McBride, whose cash compensation totaled $986,047
in the company's fiscal year ending last October. That pay package troubled
BayStar, McGrath said, given SCO's small size -- the company has annual revenue
of $79 million and about 300 employees.
Losing BayStar's money would be a major blow to SCO, whose Linux lawsuits target
several deep-pocketed giants, including IBM Corp., DaimlerChrysler AG and
AutoZone Inc.
SCO's market value has plunged by 30 percent, or about $40 million, since
BayStar asked for its money back. SCO's shares fell 38 cents Wednesday to close
at $6.80 on the Nasdaq Stock Market.
BayStar, which specializes in making private investments in publicly held
companies, arranged a $50 million infusion for SCO last fall. The Royal Bank of
Canada contributed $30 million of the financing. The Royal Bank hasn't revealed
what it will do if BayStar abandons SCO.
The financing raised eyebrows in the high-tech community after BayStar and SCO
confirmed they had been introduced to each other by software giant Microsoft
Corp., which has been losing some customers to Linux. Microsoft says it has no
financial ties to BayStar.
The investment firm didn't consult with Microsoft before its showdown with SCO,
McGrath said.
The public strife is unusual for BayStar, a low-profile investment firm founded
in 1998 by former bankers Lawrence Goldfarb and Steven Lamar. Since its
inception, BayStar has invested $745 million in about 160 companies, including
XM Satellite Radio Inc. and Roxio Inc.
The SCO deal represents the first time that BayStar has demanded its money back,
McGrath said.
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