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SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Tuesday, August 31 2004 @ 07:34 PM EDT

SCO's 3rd quarter teleconference is eye-opening. Participants were Darl McBride and CFO Bert Young. They are having to do some belt-tightening, poor things. They have been bleeding money to their lawyers. $7.3 million in the last quarter alone. And SCOSource is not bringing in anything like what they are spending to try to get income from it.

Boies Schiller has agreed to a cap on their fee, all the way through appeals, which was mentioned a few times, which I take as foreshadowing. They have entered into a letter of intent with Boies Schiller and other firms that there will be a cap, but what they get from contingencies will go up, on a sliding scale from 20% up to 33%.

Here's SCO's press release telling the news their way, with details. The Unix products business, they say, is now profitable. They are, however, downsizing and some offices are moving to smaller offices. They are closing the Spain and Italy offices. They expect "restructuring" costs in the 4th quarter. I gather there have been layoffs and they expect more. They currently have 230 employees. They have, they said, implemented a Shareholder Rights Plan that will help protect the company from any potential undervalued takeover attempt. Darl McBride specifically mentioned IBM, saying the plan is designed to block any company like IBM from taking them over for less than what they would view as fair value. He mentioned that there plan was not in response to any current takeover attempt.

Darl McBride characterized the quarter as the company "firing on all cylinders." He and I never see things quite the same way, I must say. If this is all their cylinders, I'd say they may not make it all the way up to the top of the hill.

SCOSource took in $678,000, but that is one that actually happened in a prior quarter. Is that EV1 finally showing up? I read they had one in the UK recently, didn't they? So that is all. Of course, we are not allowed to know details, because of "confidentiality reasons." Also, we might make fun of them. One new license in the entire quarter is the takeaway, as those corporate dudes like to say.

One questioner asked, considering how many legal experts quoted in the media say that their legal strategy is flawed, whether SCO had considered approaching another firm and getting a second opinion. The answer was, No. The fact that it was asked at all is amazing. Another requested that they detail any positive developments in the legal case. Mr. McBride was "happy" to do that. Pause. Um. Well, Judge Wells said they had made a good faith effort to comply with discovery. And then IBM was ordered to turn over versions of AIX and Dynix. (He didn't mention they were ordered to turn over only what IBM had already offered and they were not ordered to turn over all that SCO had asked for, which is why SCO is having to ask for it again on September 14.) It was pitiful, his list.

He also listed the fact that they can pursue DaimlerChrysler for damages for not responding within 30 days. That's a howler. What would the damages on that be, pray tell?

And Autozone's "positive development" was that although the case was stayed (you know, Autozone, the case SCO told Judge Kimball in Utah IBM's 10th counterclaim should have to wait to be heard until everything was resolved in Autozone -- woops, that's not positive -- SCO lost that argument), but the positive part he listed was that they got 90 days for discovery and can ask maybe for an injunction. That's not negative, maybe, but it's just normal in a court process to do discovery.

They said they are looking forward to the Novell hearing on Novell's motion to dismiss. He didn't say why. He did say that SCOSource licencing should pick up (though probably not next quarter, they said) if one of two things happens:

1. any action showing that Novell's copyrights are unfounded

2. any positive development in any court anywhere. He mentioned risks in the Linux development process, which they claimed are responsible for their IP showing up in Linux, something they have yet to prove, I might point out. Perhaps they need to tell IBM with specificity where they might find such SCO IP. I'm sure we are all positively panting in anticipation.

He mentioned the OSRM patent study, which he naturally mischaracterized. He portrayed it as demonstrating problems in the Linux development process. Actually, no. The 283 patents were not valid patents necessarily. I'm sure you've seen patents granted that you know are ridiculous. The 283 could all be ridiculous. We don't know yet, because they are not yet tested in any court of law. So they don't represent "problems" in the Linux development process. They represent problems in the patent-granting process, and problems in the martketplace, where greedo, dying companies think patents can be misused as an anticompetitive weapon or as a gravy train. I asked PubPat's Dan Ravicher to comment:

"To the extent any problems exist, they are due to the patent and copyright systems, not the free software development process. SCO's case shows that proprietary software has as much, if not more, to fear from patents, as IBM has asserted four patents against SCO's proprietary software. That's four more patents than have ever been asserted in court against ANY free software.

"If we calculated the number of copyright and patent cases brought against proprietary versus free software, the results would be many to a couple (those couple being all brought by SCO) and many to none, respectively."

This may be why McBride said they don't intend to get into any "shouting match". Losing over and over must be very annoying.

If you'd like to read a commentary today on how patents are destructive to innovation, here's a particularly clear one, by Martin Brampton, entitled "Devil's Advocate: Patents are killing software innovation." All software patents do is prevent small companies from being able to compete with large companies, he says:

"Patents are brutal. Even though a number of people may have independently had the same idea, only the first to register a patent gains protection. The rest lose everything. Copyright is a much more flexible right, with no penalties for mere lack of originality. . .

"Imagine patents being applied to works of literature. If the works of Shakespeare or the Bible were to be patented, it would become extraordinarily difficult to write anything. We all commonly use phrases from both without even realising their source. . . .

"Patents are a means to stifle competition, while much of the real innovation comes from individuals and groups outside the major companies, which are already well placed to withstand competition. . . .

"The argument that the new software was invented independently is no defence against a patent-infringement claim.

"Evading the problem may be possible through insurance, which is a direction pioneered by Open Source Risk Management. But the real solution is a fundamental rethink of the role of patents in a world of global corporations. We want creative individuals to be justly rewarded but a system that protects giant companies against competition is in few people's interests."

Here is another article about the OSRM study, which explains it very well, on LinuxDevCenter.com.

More reports on the teleconference: Stephen Shankland; The Register's Ashlee Vance; and even Forbes.

There is more info on the shareholders rights plan in eWeek's report by Steven J. Vaughan-Nichols:

"It is SCO's fear that with a current market cap of slightly more than $58 million, IBM -- or an opportunistic group -- might try to take over SCO.

"'The plan will not prevent a takeover attempt, but should encourage anyone seeking to acquire the company to negotiate fair value directly with the board of directors,' SCO chairman Ralph Yarro III said in a statement.

"The plan will be triggered if a person or group acquires, or attempts to acquire, ownership of 15 percent or more of SCO's common stock. In the event of a takeover attempt, the board would decide whether the offer being made is fair to common SCO stockowners."

He points out that the recent BayStar fight could be characterized as a hostile takeover attempt, but that McBride said the plan was not a result of that battle.

Robert McMillan reports a few more details:

"In an apparent response to industry rumors that SCO may become the target of a hostile takeover bid, SCO's Board of Directors has implemented a 'shareholders rights plan' designed to deter unsolicited takeover attempts, McBride said. 'We believe that this will basically keep any outside offers or potential takeovers that are not in the best interest of the shareholders at bay,' he said.

"The plan, which was adopted by the board on Aug. 10, gives SCO's board the right to determine the 'fair value' of the company in the event of a takeover attempt, McBride said.

"SCO's stock, which was trading in the $20 range in September 2003, has dropped below $4 in recent weeks. 'We are very concerned about the current price of the stock vis-a-vis what we think the long-term value of the company is,' McBride said. 'The disparity between these two is definitely at the core of what we put in place.'"

And a bit more from StockHouse USA:

"Under the terms of the rights plan, preferred stock purchase rights will be distributed as a dividend at the rate of one Right for each share of SCO's common stock held by stockholders of record as of the close of business on August 30, 2004. The plan would be triggered if a person or group acquires beneficial ownership of 15% or more of the Company's common stock other than pursuant to a board-approved tender or exchange offer or commences, or publicly announces an intention to commence, a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of the Company's common stock.

"Details of the shareholder rights plan are outlined in a letter that will be mailed to all SCO shareholders as of the record date. In addition, a copy of the rights plan will be filed with the Securities and Exchange Commission as an exhibit to the Company's Current Report on Form 8-K."

All in all, it was a sad day in SCOville.


  


SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees | 459 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
OT Here
Authored by: Anonymous on Tuesday, August 31 2004 @ 07:50 PM EDT
.

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: red floyd on Tuesday, August 31 2004 @ 07:50 PM EDT
I wonder if one of the 283 is RCU, which, since IBM released the code under GPL,
they've probably implicitly licensed.

---
The only reason we retain the rights we have is because people *JUST LIKE US*
died to preserve those rights.

[ Reply to This | # ]

Corrections here please.....
Authored by: Anonymous on Tuesday, August 31 2004 @ 07:52 PM EDT
.

[ Reply to This | # ]

Troll, astroturfers and other low life here please...
Authored by: Anonymous on Tuesday, August 31 2004 @ 07:54 PM EDT
... so we can laught at you.

[ Reply to This | # ]

Typos
Authored by: Anonymous on Tuesday, August 31 2004 @ 07:54 PM EDT
s/greedo/greedy/

[ Reply to This | # ]

Worried About Hostile Takeover ??!?!?!?!
Authored by: Anonymous on Tuesday, August 31 2004 @ 07:54 PM EDT
Are SCO really truly worried about a hostile takeover...

...or do they just want to give the impression that they are worried about a hostile take-over? (Perhaps in order to talk up the possibility of a take-over and boost the stock price)

You decide.

One possible hint, may come from looking at their historic stock chart...

...SCO says they are worried about the possibility of a hostile take-over since their stock price has fallen recently.

The question would be, were they worried about the possibility of a hostile take-over during the period from approx October 2001 to March 2003 (about 18 months) when their stock price was even lower than it is now? Did they take any steps to prevent a hostile take-over during those 18 months?

Quatermass
IANAL IMHO etc

[ Reply to This | # ]

"all cylinders"
Authored by: Peter H. Salus on Tuesday, August 31 2004 @ 07:57 PM EDT

In the 1950s I had a friend who owned a two-stroke
motor bike. I once rode in a Lagonda V-12. Firing
on "all cylinders" means very different things.

It's clear to me that however many cylinders SCOG
has, there are many fewer than the IBM vehicle
possesses.

---
Peter H. Salus

[ Reply to This | # ]

"...up to the top of the hill."
Authored by: jbeadle on Tuesday, August 31 2004 @ 08:04 PM EDT
Hmmm. Sounds like a Rolls Canardly to me.

You know - Rolls down one hill, Canardly make it up the next...

;-}

-jb

[ Reply to This | # ]

Maureen O'Gara Killing Them
Authored by: grendelkhan on Tuesday, August 31 2004 @ 08:05 PM EDT
She is pounding them on what they've spent on lawyers and what their return will
be. Gottta love it.

[ Reply to This | # ]

Doing the Math
Authored by: Rhys Weatherley on Tuesday, August 31 2004 @ 08:06 PM EDT
At $699 a license, $678,000 would equate to a little shy of 970 licenses. Even
if EV1 and Co. got a 50% discount for buying in bulk, that's still less than
2000.

Millions of machines around the world running Linux, and they can't scare up
licenses for more than 2000 of them? Surely they could have found a few more
FOSS-ignorant CEO's to take the bait? Surely?

I can see why they hate Groklaw so much. Anyone who has read Groklaw tells them
to get lost until they win the Novell and IBM cases. And Groklaw now has
saturation coverage.

[ Reply to This | # ]

Maureen O'Gara miffed??
Authored by: Anonymous on Tuesday, August 31 2004 @ 08:07 PM EDT
Was it just me or did Maureen O'Gara sound pissed? Maybe it has something to do with all the comments attached to her last article?

[ Reply to This | # ]

Autozone result 'positive'.
Authored by: darkonc on Tuesday, August 31 2004 @ 08:25 PM EDT
And Autozone's "positive development" was that although the case was stayed . . . . , but the positive part he listed was that they got 90 days for discovery and can ask maybe for an injunction. That's not negative, maybe, but it's just normal in a court process to do discovery.

What's positive about that is that SCOX didn't get cut off at the knees. They might have gotten their foot shot up some, but that's OK. Them SCOX types are used to shooting holes in their feet.

Honestly -- given how specious most of their lawsuits are, I'd say that not getting totally thrashed in any given court appearance is good news.

---
Powerful, committed communication. Touching the jewel within each person and bringing it to life..

[ Reply to This | # ]

Software patents
Authored by: josmith42 on Tuesday, August 31 2004 @ 08:32 PM EDT
"If you'd like to read a commentary today on how patents are destructive to innovation, here's a particularly clear one..."

Thank you for the quote. Just reading that little bit made me realize that software patents are part of OldThink, and have no place in the next generation of software development. I particularly liked the analogy of patenting Shakespeare and the Bible.

I commented a while back that perhaps software patents weren't necessarily a bad thing if not abused, but now I realize that any use of software patents is abuse. They only provide fodder for legal departments.

---
Forty-two: the answer to the question of life, the universe, and everything.

[ Reply to This | # ]

Forbes - They are GENIUS
Authored by: MikeA on Tuesday, August 31 2004 @ 08:40 PM EDT
I love the fact that all the news coverage of this does a pretty good job of explaining the conference call results, except Forbes: They never mention that the company posted a $7.4 million dollar loss for the quarter like everyone else, they only mention that the per share value "rose to 38 cents per diluted share from 19 cents a year ago" which was because of the Baystar repurchase. Also, they place the whole article in a "Stocks to Watch" list with a bunch of other news to avoid having to write a headline like "SCO Falls to Loss in 3rd Qtr", "SCO Slips to a Loss in 3rd Quarter", "SCO Group Swings to a Loss" and "SCO Group posts net loss vs profit, Revenue falls". They are very clever.

Pretty sneaky, sis.

---
"You need some facts to win in a court of law, thou doofus." - The Knights of Armonk (Translation by PJ)

[ Reply to This | # ]

Why the $31m cap?
Authored by: Brian S. on Tuesday, August 31 2004 @ 08:44 PM EDT
What caused this change of arrangement? Whose idea was it?

I don't believe it was SCOG's idea. It doesn't change their burn rate. It does
set a limit on their upfront legal fees but they have always been in charge of
that. They could say "settle" anytime they want. BSF are hardly going
to work for a loss. SCOG have offered them a slight carrot by upping the success
percentage, but does that mean BSF will flog a dead horse. It seems to me SCOG
have less control over BSF than they did before.

What about BSF? Personally I think it was their idea. I think they can see which
way the wind is blowing? I think they are starting to feel uncomfortable and
wanted to know how much was in the pot. Darl didn't seem to be certain which
fees were included and which were not. If the new arrangement was his idea he
wouldn't need to think. Sure BSF will take this all the way to
"appeals" but I would suggest their effort will decrease as they close
in on $31m and SCOG could well end up with the office junior.

I think BSF know they're on a looser and wanted to know how long they were
expected to string it out. The appeals could start shortly after Sept 15th, and
at a burn rate of $7.5M a quarter, $31m won't last long, some of it apparently
already spent.

Brian S.

[ Reply to This | # ]

The question that I want to know - any Darl bluster?
Authored by: Anonymous on Tuesday, August 31 2004 @ 08:47 PM EDT
I didn't listen to the conference call

The question I want to know: Was there any of the old Darl bluster?

For example, in the last conference call, Darl told us that he couldn't talk about the cases because they had been instructed not to by Magistrate Judge Wells.... then he went on to tell us, among other things:

(1) "Big blue has big problems!"

And (2) that IBM's public position (apparently put out by all those evil IBM agents) was contradicted by sealed or private documents

And (3) that the sealed documents that we hadn't seen yet, showed that SCO's case was solid.

So again: Any sign of the old Darl? Has he been kidnapped? Any sign of the old Darl bluster?

Quatermass
IANAL IMHO etc

[ Reply to This | # ]

SCO Downsizing
Authored by: ansible on Tuesday, August 31 2004 @ 08:48 PM EDT

I'm looking forward to examining the actual financial numbers for the past quarter.

Discounting the payment to Baystuck, they actually made money on operations, most of it not on SCOsores.

The interesting bit is that they did in on drastically falling revenues. Of course, Q3 last year, they were getting some payoff from Sun and M$.

Without those payments, was revenue flat?

So I'd really like to see the numbers on the actual Unix operation (what there is of it). I'm curious to see how much they have cut expenses and what that will do to their future revenue.

[ Reply to This | # ]

Doesn't UnixWare include a SCOSource license?
Authored by: jewellgm on Tuesday, August 31 2004 @ 08:59 PM EDT
Didn't SCO add a SCOSource license to its UnixWare products? So, the $678,000
that they claim from SCOSource could very well include all sales of UnixWare.
(I don't know whether a license is included in OpenServer or not.)

[ Reply to This | # ]

Gotta love this one!
Authored by: Anonymous on Tuesday, August 31 2004 @ 09:00 PM EDT

Darl:

They currently have 230 employees. They have, they said, implemented a Shareholder Rights Plan that will help protect the company from any potential undervalued takeover attempt. Darl McBride specifically mentioned IBM, saying the plan is designed to block any company like IBM from taking them over for less than what they would view as fair value.

Fair value? Fair value? FAIR VALUE? What value Darl? Where is it?

BWAHAHAHAHAHAHAHAHAHA!

[ Reply to This | # ]

Thanks PJ .
Authored by: Anonymous on Tuesday, August 31 2004 @ 09:05 PM EDT
Funny good stuff, as the SCO team continued to try and make it seem they still
hold the magic code, to win the case just before they spend that last million.
At one point, I don't know who said it, but someone said "litigation
business", maybe a slip up, or maybe not, I never thought of litigation as
a business. It was funny at times to hear them craft their words into position,
to make them sound as if SCO is in control and it is IBM and the others are
fighting to keep up.

[ Reply to This | # ]

SCOSource Licensing
Authored by: ujay on Tuesday, August 31 2004 @ 09:13 PM EDT
PJ, you left off two other things that would indicate increasing SCOSource
licensing potential.

3) Porcine Aerobatic Team display
4) Bovine Lunar Activity



---
Windows - How do you want to be exploited today.

[ Reply to This | # ]

One of the highlights
Authored by: Anonymous on Tuesday, August 31 2004 @ 09:29 PM EDT
of the conference call is when Darl (or one of his goons) describes the baystar fiasco by highlighting the amount they "realized" by the difference between the price BS bought in at and the price they got when they converted the shares to non-preferered or whatever.

I mean, that's like saying "by applying math, we can generate some positive number from all these negative numbers"!

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: blacklight on Tuesday, August 31 2004 @ 09:33 PM EDT
This is what I get from SCOG's own press release:

(1) SCOG's cash position at 31 July 2004 is $43 mils. Substract $13 mils that
SCOG agreed to give back to Baystar, and SCOG's cash position deteriorates to
$30 mils. It so happens that SCOG and Boies signed an agreement that Boies is
not going to take out more than $31 mils in cash from SCOG. In other words, if
Boies plays the game right, all of SCOG's cash ends up in Boies' coffers.
According to the agreement, Boies is not to take more than 100% of SCOG's
remaining cash - Someone is taking somebody else to the cleaners, and that
someone ain't SCOG. That was some tough and brilliant negotiating on your part,
SCOG. You really showed Boies who's the boss in the relationship!

(2) SCOG's cash position should drop to less than $25 mils by December,
assuminng that Baystar cashes in and SCOG's loss rate of $16 mils over three
quarters continues. SCOSource revenues at $667000 per quarter are derisory in
comparison to the losses, and it's not as if anyone expects SCOSource revenues
to grow significantly from that number any time soon.

(3) Darl the Snarl claims the UNIX business is profitable. However, I don't see
what if anything he has done to bring about profitability except for layoffs and
office consolidations and downsizing. Whether his downsizing can keep up with
his declining UNIX business - that's his problem.

(4) SCOG is distributing Linux in violation of IBM's copyrights, and his entire
UNIX product line is allegedly in violation of three of IBM's patents. Further,
SCOG has no plans to idemnify any of its customers should IBM win. Darl the
Snarl can improve his UNIX product line as much as he wants, but that's an
irrelevant exercise: doing business with SCOG is still risky.

If Darl the Snarl claims SCOG is in an excellent position, I agree: SCOG lost
significant money this quarter, and is in an excellent position to lose even
more next quarter.

[ Reply to This | # ]

Conference call links
Authored by: Pres on Tuesday, August 31 2004 @ 09:40 PM EDT
Here are some links to the conference call so you can listen to it. I found
them on Slashdot. I have tested the Win Media Player and it works but have not
tested the other 2.

Windows Media Player
http://play.rbn.com/play.asx?url=shareholder/share
holder/wmdemand/040831cald.asf&proto=mms?mswmext=.asx

RealPlayer format
http://play.rbn.com/?url=shareholder/shareholder/demand/040831cald.ra&proto=
rtsp

http://www.users.cloud9.net/~terrapn/


Pres


[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: blacklight on Tuesday, August 31 2004 @ 09:45 PM EDT
"Through the combination of the quarter's positive developments and our
current cash position, we are well-positioned to pursue our current litigation
through its conclusion."

At the rate IBM is pushing its PSJs, said conclusion may arrive a lot sooner
than Darl the Snarl and SCOG believe.


"SCO announced today in a separate press release that the Company's board
of directors has adopted a Shareholder Rights Plan. This plan is designed to
ensure that potential acquirers of the Company's stock recognize fair value for
the Company's assets and opportunities."

SCOG is in close touch with reality, as always.

[ Reply to This | # ]

Doesn't IBM advertise in Forbes?
Authored by: Anonymous on Tuesday, August 31 2004 @ 09:49 PM EDT
Why does forbes so blantantly favor msft in this?

[ Reply to This | # ]

$7.2M in SCOSource revenue in Q3 2003?
Authored by: Anonymous on Tuesday, August 31 2004 @ 09:50 PM EDT
According to the financials presented during the conference call, SCOSource
revenue fell to $680,000 compared to $7.2 million for the same quarter last
year. The first figure is surprising but understandable; probably EV1 and some
other poor mopes. But I'm curious about the second. Who on earth was buying
licenses last year, and how many people would there had to have been to generate
$7.2 million in revenue? If I recall correctly, SCO has even admitted that
there are very few SCOSource lincesees.

What am I missing here?

[ Reply to This | # ]

Copyrights vs Patents
Authored by: Anonymous on Tuesday, August 31 2004 @ 10:00 PM EDT
"Patents are a means to stifle competition, while much of the real
innovation comes from individuals and groups outside the major companies, which
are already well placed to withstand competition. . . ."

At least patents expire. Thanks to recent greasing of Congress by their
lobbyist, copyrights have been changed. Geared now towards big business (for
members of the RIAA and the MPAA) now copyrights effectively never expire if you
pay you money.

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: blacklight on Tuesday, August 31 2004 @ 10:01 PM EDT
In the financial world, there are lies, damned lies, and SCOG earnings
conference calls.

[ Reply to This | # ]

Q&A session
Authored by: rvergara on Tuesday, August 31 2004 @ 10:04 PM EDT
I have heard only this and last quarted CC.

Is it me or the questions from analysts were a lot more aggresive and
unfriendly?

Dion was blunt, Maureen sounded unconvinced with Darl explanations.

The wave is turning

[ Reply to This | # ]

An Apology of Sorts
Authored by: Anonymous on Tuesday, August 31 2004 @ 10:05 PM EDT
I've never viewed GrokLaw as an 'unbaised' source: PJ's articles have sometimes
been a little harsh but on the whole, they've reported what's going on. The
follow-on comments, however, have been ... umm, how to say this? Frequently,
anti-SCO to the point of being irrational? I've pictured people building
bonfires and dancing around them in their undies every time someone (judge or
'industry expert') issues a public statement, chanting "Burn, SCO,
burn!". I was always a bit uneasy when the collective mind here started
assuming a resolution was right around the corner.

... that was then. This is now. I listened to the entire conference call and I'm
glad that I got the chance to hear Darl live (sort of) and in person. This is a
person that, if I met him at a party; I'd rather quickly disengage myself and
find someone else to talk to. Without even knowing the background, he comes
across as a <strike>slimeball</strike>^h^h^h^h^h^h^h^h^h person of
dubious moral values. Knowing the background (Thank you, thank you and if I
haven't mentioned it already, thank you PJ), I listened to what those two said
and applied a liitle bit of additional common sense. And didn't buy any of it.

As other and much more exerienced contributors have pointed out - remember that
this a long, slow process. Odds are, SCO will lose and probably big time. Other,
slim, odds are that they won't. Don't assume that this is a done deal; don't
assume that this will all be over on Sept 15th; give it time.

There's an old cliche about the word 'assume' that I won't repeat here (my wife
brings it up on occasion and that's not a happy place for me at the best of
times). Whatever, don't fall into the same trap - I seem to remember Darl
mentioning the OJ trial a while ago. It's actually a fairly good point - in the
courtroom, screwy things can happen. This ain't done until it's done. Relax,
don't even buy the champagne yet. Again, it's a process - there will be justice
in the end but the end date is far from clear right now.

Just so I don't sound outright negative, I did pick up a bit of healty sceptisim
from the open question part of the call - let's just see what their stock does
over the next couple days. Oh, and the whole 'Okay, IBM, it's okay to buy us now
but it's gonna cost you' thing was beyond priceless.

... might just have to build a bonfire and invite the ... oh, heck, who would I
invite?

Just me, I guess.

[ Reply to This | # ]

Shareholder Rights Plan?
Authored by: FurrBear on Tuesday, August 31 2004 @ 10:10 PM EDT
Darl McBride specifically mentioned IBM, saying the plan is designed to block any company like IBM from taking them over for less than what they would view as fair value. I almost had coke all over my keyboard from laughing at this one. What is 'fair value' going to be once the Nazgul have reduced SCOX to a smoldering crater? I think it it widely believed that if IBM were inclined to purchase SCOX and make the bothersome gnat that is Darl go away, they would have done so, in fact, done so quite some time ago. My beief is that IBM is going to litigate SCOX into the ground and claim the smoking ashes of assets out of SCOX's bankruptcy to settle their court victories against SCOX.

[ Reply to This | # ]

Corporate Raider?
Authored by: mobrien_12 on Tuesday, August 31 2004 @ 10:12 PM EDT
OK I'm neither a lawyer nor a financial analyst.

However, I've heard that the best hostile takeover targets are companies that
have more cash reserves than their stock is worth. You buy out enough of their
stock, you dissolve the company, and you've essentially bought their money.

This is a much more sane idea than pouring 40 million dollars into what seems to
be a very weak lawsuit against IBM.

Of course, you have to have the stock price low enough so that when it rises
during the buyout, you don't end up losing money on the deal. IBM couldn't do
it, because speculators would then jump all over the stock and drive the price
up.

What do you think? SCO's UNIX business is hemmoraging money. Is the company
now more valuable dead than alive?

[ Reply to This | # ]

SCOG's take on the courts
Authored by: Glenn on Tuesday, August 31 2004 @ 10:15 PM EDT
In one part of the conference, I think it was Darl who said that some of the
witnesses that IBM has deposed have elsewhere at other times offered sworn
testimony directly opposite that which they gave to IBM. Does anyone know of any
court cases where any of the witnesses that IBM is counting on for their
contract claims have testified concerning those contracts?

Thanks,
Glenn

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SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: Glenn on Tuesday, August 31 2004 @ 10:31 PM EDT
On the downsizing front, I am thinking that Darl & company must have set
up a poison pill where the current stockholders (can anyone say Canopy?) will be
given the option of buying a bunch of additional, newly created shares at a
steep discount if any one company acquires a set percentage of the common
shares. This would dilute the value of the shares acquired by any company intent
on a hostile takeover and also make the takeover more expensive. Darl or Bert
probably thought of this after doing a Google search for hostile take overs just
like I just did.

Glenn

[ Reply to This | # ]

A question about contingency fees
Authored by: Anonymous on Tuesday, August 31 2004 @ 10:36 PM EDT
Why would Boies Schiller agree to a cap with an increase in contigency fees?
Don't they know there will be no award for them to collect their contigency fee
from?

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: GrueMaster on Tuesday, August 31 2004 @ 10:44 PM EDT
Now who would be hostile towards SCO?

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: jim Reiter on Tuesday, August 31 2004 @ 10:47 PM EDT
Under valued take over?

Like who's going to move before the 15th;

and, who's going to move after the 15th.

Do you think Darl hears voices? Maybe his dog tells him what to do.

[ Reply to This | # ]

Pleasant thought from Lamlaw
Authored by: Anonymous on Tuesday, August 31 2004 @ 11:09 PM EDT

Mettler speculates having Novell and IBM in court at the same time with SCO was on purpose.

The purpose is that Kimball will dismiss IBM's CC 10 on the grounds that SCO has no standing to bring any legal actions against IBM, because Novell is the rightful party, not SCO, in any copyright questions. This despite the fact that Novell is not seeking a definitive copyright ruling on SCO's slander of title case.

So, Kimball will ask Novell if it has any objections to dismiss IBM's counterclaim. (Gee, do you think they will?)

See if I'm reading it right.

http://www.lamlaw.com/

[ Reply to This | # ]

Conference call as an MP3
Authored by: DannyB on Tuesday, August 31 2004 @ 11:22 PM EDT
I saw this link on slashdot. Reposting here, for those who might be interested.

SCO Conference MP3

---
The price of freedom is eternal litigation.

[ Reply to This | # ]

Darl McBride for Most Blurred Visionary 2004!
Authored by: kawabago on Tuesday, August 31 2004 @ 11:24 PM EDT
McBride has burned all of SCO's bridges and driven all customers away. No one
would touch any of their products now so their IP is worthless. SCO is worth
ZERO Darl, forget 'fair value'! If I was a shareholder I'd be crying.

I'm not sure who I am but does it matter?

[ Reply to This | # ]

PJ, no blasphemy please!
Authored by: DaveAtFraud on Tuesday, August 31 2004 @ 11:38 PM EDT
All in all, it was a sad day in SCOville.
There are those of us among your readership who are chile-heads who worship the scov ille unit and take unkindly the use of it to reference a bunch of crooks and ne'er-do-wells from Lindon, Utah.

---
Quietly implementing RFC 1925 wherever I go.

[ Reply to This | # ]

Conference transcript on Yahoo SCOX
Authored by: DannyB on Tuesday, August 31 2004 @ 11:50 PM EDT
SCO Conference transcript on Yahoo SCOX board.

Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
Part 7
Part 8
Part 9


I am still listening to the Q&A part of the MP3 of the conference. I'm not sure if the above is a complete transcript or not. I just saw it, and am repeating it here.

---
The price of freedom is eternal litigation.

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: jasonstiletto on Tuesday, August 31 2004 @ 11:53 PM EDT
"the Novell Case, you know there was, novell has filed a motion to dismiss,
that case was obviously not dismissed."

Darl McBride, Aug 31 Conf Call

CONCLUSION

For the reasons stated above, Plaintiff's Motion to Remand is DENIED, and
Defendant's Motion to Dismiss is DENIED as to Plaintiff's pleading of falsity
and GRANTED as to Plaintiff's pleading of special damages. Plaintiff is granted
30 days from the date of this Order to amend its Complaint to more specifically
plead special damages.

Dale A. Kimball

Good ol' Darl. So factual. So true.

[ Reply to This | # ]

Is this the End Time for SCO?
Authored by: gdt on Wednesday, September 01 2004 @ 12:51 AM EDT

Looking at the financial numbers and arrangements I wonder if SCO is preparing for the possibility that this is their last quarter of control over the company.

As far as I can tell the financial arrangements: (1) ensure the lawyers are paid up to mid-September, (2) increase the price to IBM of any bid to purchase it's way our of whatever is left of the SCO litigation after 15 Sep, (3) put in place a mechanism to allow SCO's remaining cash and assets to make their way to Canopy.

There may be a small Unix company left at the end. But that company is doomed: it's too big, too many offices, too much overhead per sale. It would require real management and brilliant PR to turn it around. And why would either of those choose to blight their careers by working at SCO?

In my mind, SCO is no longer the main game. Will IBM go after those behind this scheme, or are they content to leave SCO as a warning to other firms from entertaining similar approaches from the backers of the SCO-IBM litigation?

The only blessing out of this sorry mess is that SCO's customers have a ready alternative to SCO's products -- Linux. As Autozone showed, it's not a huge amount of work to port any bespoke applications from SCO Unix to Linux. If I were a SCO employee I'd be putting the finishing touches to a business plan to provide rapid SCO->Linux porting services.

BTW, it's now clear why SCO's Australian office spoke up last week ("Linux doesn't exist", etc). They wanted their office to exist this week. Some offices in Europe haven't said much, and are now closing.

[ Reply to This | # ]

patent worries
Authored by: Anonymous on Wednesday, September 01 2004 @ 12:56 AM EDT
as a one time member of the "41 for freedom"

can i "patent" the process of "mutual assured destruction"

and I do mean "mutual"

ssbn-642 gold crew

[ Reply to This | # ]

  • patent worries - Authored by: Anonymous on Wednesday, September 01 2004 @ 07:24 AM EDT
Takeover
Authored by: sjf on Wednesday, September 01 2004 @ 01:15 AM EDT
Who in their right mind would want SCO now. All they've got is a failing Unix
bussiness, and Lawsuit that is eating them alive.

[ Reply to This | # ]

  • Takeover - Authored by: sjf on Wednesday, September 01 2004 @ 05:04 PM EDT
  • Takeover - Authored by: Anonymous on Wednesday, September 01 2004 @ 10:41 PM EDT
Cashing Out?
Authored by: Anonymous on Wednesday, September 01 2004 @ 02:22 AM EDT
It should be considered that the latest litigation activity may simply be a
cover for the real motivation behind players in the SCO drama: skimming off as
much cash from the company as possible before the well runs dry. Looking at the
SCO balance sheet from just 9 months ago shows over $64 million in cash and cash
equivalents on the books. By the end of April 2004, the cash pile had shrunk to
a little over $45 million. By July 30, 2004, the latest balance sheet shows only
around $16 million in cash is left. In place of the cash and cash equivalents is
more than $27 million in what is described as ready-for-sale securities.

There seem to be some important questions that SCO shareholders should be asking
themselves, and maybe their attorneys. What exactly are these ready-for-sale
securities, and who were they purchased from? What is their actual market value
today compared to their original purchase price? How has SCO managed to convert
nearly $50 million in cash in just 9 months time without disclosing any
pertinent information to most of its common shareholders? And finally, have one
class of common shareholders been favored over all others in SCO's tangled
financial dealings?

[ Reply to This | # ]

How to create gossip, lesson 1
Authored by: Anonymous on Wednesday, September 01 2004 @ 02:41 AM EDT
"(...) plan was not in response to any current takeover attempt."

So that's how you create gossip: deny the existence of something (current
takeover attempt) just to get people talking about it and maybe, just maybe,
catch some potential investor's interest.

Poor SCO, if they think IBM is even interested. And poor of any investor that
falls for it.

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: Anonymous on Wednesday, September 01 2004 @ 03:58 AM EDT

$41,000,000 / 230 employees = $180,000

That's about a year to go 'till you don't get paid.

[ Reply to This | # ]

SCO's results were very good
Authored by: Anonymous on Wednesday, September 01 2004 @ 05:05 AM EDT
You give a wrong impression of SCO's financial results. Actually they were much better than many people expected.

The SCOsource revenue of about $678,000: This is amazing. Somebody is actually buying licenses. The fact that it's a big reduction from the same quarter last year is irrelevant, because last year's $7m (or whatever it was) was a one-off payment by Sun. To provide a meaningful comparison, one-off payments are usually (and should have been) disregarded.

Its total revenue for the quarter, though less than last year which was inflated by the big one-off payments, is more than last quarter's. In other words, SCO's revenue is increasing. It seems incredible to me that anyone is buying anything from these scumbags, but companies obviously are buying.

SCO has about $41M in cash and is burning about $7M per quarter. So even if its revenue were not increasing (which it is), SCO has enough money to make itself a pest for the next year and a half at least.

Boies and Schiller obviously think SCO has a chance in one of its lawsuits, and B&S is not exactly a bunch of pikers from Hicksville. They're a top law firm which is usually able to take its pick of top law-school graduates every year. Therefore, they have some very bright lawyers. If B&S thinks SCO has a chance, B&S is probably correct. I don't see how, but then, I'm not bright enough for B&S to hire me. And I hope you won't all be offended if I say that the same is true for at least 99.9% of Groklaw readers.

[ Reply to This | # ]

Take over
Authored by: Anonymous on Wednesday, September 01 2004 @ 05:30 AM EDT
If sco is taken over by another company,it can be a bad thing. The situation now
is that SCO has a limited amout of money. If sco is taken by someone who has
more money, for example baystar, it can be take longer when everything is over
and can also be more annoying.

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: Anonymous on Wednesday, September 01 2004 @ 07:53 AM EDT
If SCO is convinced their stock is undervalued, why don't they buy back some of
it? Running short on cash, perhaps? Not really convinced it's undervalued? Still
too busy selling their personal shares, maybe?

[ Reply to This | # ]

Caller from Client Server Magazine
Authored by: Anonymous on Wednesday, September 01 2004 @ 08:03 AM EDT
From the conf. call last night. She was pretty brutal. Did anyone happen to
catch her name?

[ Reply to This | # ]

Let's buy SCO ourselves
Authored by: Min Donner on Wednesday, September 01 2004 @ 09:15 AM EDT
I know it is not even remotely possible, given the number of shares Canopy
groups owns, but wouldn't it be fun if all Groksters got together, bought all
the shares we could and ended up owning SCO? We could give it to PJ as a
Christmas present.

[ Reply to This | # ]

IBM Sponsered web sites
Authored by: mhoyes on Wednesday, September 01 2004 @ 09:34 AM EDT
You know, as I was listening to the Q&A session, I noticed that in response
to Dion's second quesiton, that Darl is still on about IBM
"sponsering" web sites to attack SCOG. Haven't they tried this before
and been knocked down? Or is Darl having trouble keeping the world straight in
his head.

On a side note, everytime I hear Darl talking about the valuable Unix IP, I
picture him as the Golem ("My precious IP!"). Makes me wish I could
draw.

[ Reply to This | # ]

A comment on SCO's balance sheet
Authored by: Anonymous on Wednesday, September 01 2004 @ 09:46 AM EDT
Take a look at SCO's balance sheet, which is in their press release. Their current tangible assets are $65M. Their total current liabilities (including the $13M they'll pay Baystar) are $44.5M. So their net resources are just the difference between these two, i.e. $20.5M.

And they're burning money at the rate of $7M per quarter. That means that they can't last for more than 9 months. Quarterly reports are unaudited; unless something changes pretty dramatically, I would expect the accountants who perform the next audit (annual reports have to be audited) to "qualify" their report, i.e. state that there is doubt whether SCO can continue as a "going concern".

When Wall Street sees "going concern" issues on an auditor's report, SCO's stock will immediately drop below $1, if it isn't there already. And nobody will extend them any credit. So their real lifetime is much less than 9 months. It's the time between now and the next set of audited accounts.

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: Anonymous on Wednesday, September 01 2004 @ 11:22 AM EDT
" So they don't represent "problems" in the Linux development
process. They represent problems in the patent-granting process,..."

Thank you, that's exactly what I was thinking when McBride made his mispoint.

I was wondering, would the USPTO be liable for damages resulting from
incompetently/negligently granting vast numbers of bogus software patents that
cost non-patent holders significant legal or redevelopment fees as a result of
bogus-IP enforcement by the patent holders?

If there were a legal basis for it, suing the USPTO directly seems like a great
way to bring this issue to head real quick.

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: Anonymous on Wednesday, September 01 2004 @ 12:13 PM EDT
He was talking about the layoffs when he said "Firing on all
cylinders" :-)

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: Anonymous on Wednesday, September 01 2004 @ 12:26 PM EDT
Only a fool would buy SCO and Daryl knows it, SCO's problems woudl move with SCO
no matter where they went. Due diligence would reveal the liabilities instantly
to any purchaser, namely that despite the cash reserves (not that impressive
considering the legal burn rate) Darl has heaped so much liability on SCO
through flapping his gums at IBM that SCO is effectively a lost cause.

You might buy SCO if you were itching to fend off lawsuits from IBM and Red Hat
and fight the inevitable class action lawsuits (that will doubtless name Darl
et.al. personally). I just don't know too many buyers who would want to do
that.

I just hope that IBM manages to get a piece of Canopy Group, the bottom feeders
who cynically started this.

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: Anonymous on Wednesday, September 01 2004 @ 01:18 PM EDT

The really great news is that all the people who were working at SCO have
already left. I doubt they have anyone who can compile UnixWare anymore :)

[ Reply to This | # ]

Mentioning Hostile Takeover??
Authored by: Stoppenheimer on Wednesday, September 01 2004 @ 03:15 PM EDT
Forgive me for being cynical, but I think we all believe that SCO isn't fearing
a hostile takeover as much as it is PRAYING for one. Mentioning it now is just
an advertisement. They know they're running out of options; IBM has let the rope
of lies and deceit play out for a year and a half, and is now poised to rip
SCO's necks out with the noose they've made. Mentioning "fear of hostile
takeover" at this point is certainly a desperate plea. Whether or not
SCOG's execs agree with me, the SCO company, as a corporate beast, is certainly
crying out for euthenasia. I hope it doesn't get its wish.

The kitten started a fight with a tiger, and ran around in circles for a while
to sustain the illusion of a fight.

But now the kitten is tired.

And the tiger is hungry.

[ Reply to This | # ]

SCO Downsizing, Worries About Hostile Takeover, Caps Legal Fees
Authored by: Stumbles on Wednesday, September 01 2004 @ 09:32 PM EDT
I find it highly ironic and very typical of McBride to say
but only a day or two ago they were going to debate their
case in the courtroom and not the media. And yet, they will
be kicking off their on the road traveling circus.

With such tempting opportunities for McBride to "chat" with
the "locals" get ready for some real pearls of wisdom from
McBride. He won't be able to help himself.

---
You can tuna piano but you can't tuna fish.

[ Reply to This | # ]

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