Slashdot Mirror
SCO gets $50 Million Investment
sjbe writes "It was announced today that SCO received $50 million in private equity funding. The lead investor is BayStar Capital which has invested in Roxio among other companies. This gives SCO a pretty big war chest to fight IBM. Before this investment SCO only had a few million in cash remaining. If you thought SCO was annoying before, this won't help."
yes, i can see how only doing a mere 81.19B in revenue could be considerred small...
i mean - msft's revenue crushes IBM, at a whopping 32.19B.
oh wait, back up, reverse that... IBM does nearly 3x the revenue of MSFT.
IBM is *the* big boy... and they've been itching to pay msft back for a while now...
... hi bingo
From the PR:
The investment in SCO was structured as a private placement of non-voting Series A Convertible Preferred Shares, convertible into common equity at a fixed conversion price of $16.93 per share, which was the average closing bid price for the Company's common stock for the five previous trading days prior to the date of closing.
As someone else pointed out (but didn't get modded up since this is a site for tech geeks, not financial geeks), SCO has more than likely received what is generally known as "Death Spiral Financing." If BayStar believed in SCO, and SCO thought it had a future, the conversion price would have certainly been higher than the "average closing bid of the last trading days..."
Here's how BayStar makes money:
For those who aren't familar with shorting, this means borrowing stock you don't own to sell to someone else. You get the money, but you will have to give the stock back in the future, since it is borrowed. What you are anticipating is that the share price will go down, so you can buy the shares back for less than you got for them. Profit!!! The danger is the that stock will go up, which you means you will have to pay more than you originally got, causing a loss to you. So why is BayStar doing this? Easy, SCO just gave them enough shares to "cover their" short position. If the stock goes up, BayStar is covered. If it goes down, Profit!!! This is a big SHORT bet by BayStar. If SCO wasn't desperate, they could have told BayStar the conversion price is $20/share for example, something higher than the current average price when the deal was signed.
This most likely signals the beginning of the end of SCO.
Imagine how much harder physics would be if electrons had feelings! -Feynman, maybe
Jesus, how blind are these investors? How long do you think it will take SCO to make back $50 million in profits, assuming they succeed in their suit? I mean, it's not like the license is an exponentially growing market. In the ideal SCO-wins scenario (i'm talking from their point obviously), they'll sell a finite amount of licenses and view VERY little growth. It's not like they release a product every two years which requires their entire userbase to buy a new license (*cough*MS*cougH*). So how could SCO be seen as a company with huge growth potential?
They bought all non-voting stock.
This sig is the express property of someone.
You are wrong about this connection. The white paper is a fluff piece pushing Baystar's prime busines interest: PIPEs. As such, the numbers mostly refer to the whole PIPEs industry to make it look like Baystar has a much bigger interest than they actually have. It's like Charter Communications claiming that they are part of the "XXX billion dollar cable TV industry" when they only have a small percentage of the market.
In one chart, you can see that there have been thousands of PIPEs since 1995, including 612 in the latest year (2002). Of those thousands, Vulcan Ventures and Microsoft Corporation are in the top ten in dollars invested.
However, Baystar claims to have been involved with 90 out of those thousands of deals ($400M total). They do not detail their clients and cusotmers in this document, but they do list their "partners:"
Larry Goldfarb
Steven Lamar
and "strategic partners:"
Thomas Hicks (Hicks, Must, Tate, & Furst)
Steven Hicks (Hicks Capital)
Andrew L Farkas (Insignia Financial)
Louis C. Gerken (Gerken Capital)
Kianfilippo Cuneo (Baystar)
I'm curious about what kind of person would buy 18% of a company with the stipulation that they would have *NO* say in how that company is run.
By definition, preferred stock does not give the buyer a voice in the way the company is run. It does, however, get preferential treatment if the corporation folds. AIR (and it has been a long time), owners of preferred stock are reimbursed at face value when the company disolves. My guess (see disclaimer above) is that in this deal, the buy-back value is fixed somewhere around $20/share. Preferred stock claims are met after creditors are satisfied but before common stockholders receive the final distribution.
It is because of this preferential treatment at the company's deathbed that preferred stock has no vote. If you think about it, that's a necessary protection for the company's health.
To the extent that SCO's fixed assets exceed $50 million and its debt structure is sound, there is not much risk to the holders of this stock.
To my mind, this confirms that SCO is using a "shoot the moon" strategy and expects to either win big or self-destruct in the near future. In other words, SCO is not behaving as a normal going concern, and the usual methods of assessing its long term values don't apply.
We've been saying that on slashdot for months, speaking from a technical viewpoint. But that message has not been getting through to accountants and market analysts. This preferred stock deal, at roughly 20% of the company's total current market value and contributing about 90% of its operating funds, is something that accountants and market analysts do understand. This is not the kind of move those guys expect from a healthy company. Today might be a particularly good day to short SCOX, before the analysts start publishing their articles.
Of course nobody would ever follow market advise given freely on slashdot, right?