This is PR to the nth degree: how to mortgage your company, give up on suing SGI, and admit you can't send out invoices after all and make it sound like a plus.
Here are reports from the teleconference to show you what I mean.
Peter Galli of EWeek reports this interesting bit. SCO says it didn't go looking for money. Several companies, according to McBride, approached them, looking to invest:
The ability to build up a "war chest" of cash was too compelling to pass up—and so The SCO Group agreed to a $50 million investment deal, announced yesterday, with investment fund BayStar Capital. So, several companies approached them. Whoever might they be?
In a media and analyst teleconference Friday, CEO Darl McBride said he is pleased with the structure of the transaction, which is favorable to both the company and its shareholders. "They are non-voting convertible shares and, once converted, the investors will own 17.5 percent of the company's outstanding shares," he said.
SCO Chief Financial Officer Bob Bench said there is no timing on the conversion of the shares, which are immediately convertible and have to be redeemed in minimum batches of 100,000 common shares at a time. There is also mandatory redemption once the stock price reaches 150 percent of the transaction value or 20 consecutive trading days at that level.
"SCO also has redemption rights and after three years can redeem the stock with a liquidation preference. So we have a lot of freedom to redeem this stock if BayStar has not converted," Bench said.
No dividend will be payable on this stock for the first 12 months, but will then kick in at 8 percent and then rise by up by 2 percent for each of the next two years with a 12 percent cap. ...
McBride also pointed out that SCO did not solicit the investment deals, but was approached by several companies interested in taking an investment stake in the company.
Techweb has more details, saying SCO does intend to pursue "royalties" and will use the cash infusion to follow up, just not with invoices:
Part of the proceeds would also be used in bolstering its legal battle against IBM and Linux distributor RedHat Inc., and in trying to convince enterprises to pay royalties for the use of Linux, which SCO claims contains its intellectual property. However, SCO President and Chief Executive Darl McBride listed that as the third target for the additional funds. Still hoping for an IBM buyout, it seems. Deutsche Bank, according to this report, is still telling you to buy SCO, putting out a second report today confirming their Tuesday buy rating, and confirming my suspicion that they likely knew about this deal in advance:
While SCO's claims against Linux get all the media attention, only a "small percentage" of the company is working on collecting royalties. "But clearly, there are a lot of opportunities for the company as it relates to enforcing our intellectual property rights," McBride said. "The two major operating systems in the world -- Unix and Windows -- SCO owns one of those, and having the ownership around the Unix operating system is a gigantic marketplace opportunity for us" . . . .
SCO is in the process of following up on letters sent to 1,500 enterprises this year, advising them that they may be in violation of SCO's intellectual property rights in their use of Linux. "Our goal is not to go out and start suing companies," McBride said. "But, as we go down that path, if we have certain companies out there that are using Linux and we're unable to come to a resolution or reach an impasse, then we absolutely will reserve the option of (taking) the legal path as the remedy to go resolve that" . . . .
In its suit against IBM, SCO would not refuse to discuss a negotiated settlement, but that the suit was still very much in a litigation mode. "With respect with IBM, that one is in the claims, counterclaims response mode, and we expect that in the next week or so we'll have additional things coming out on that," McBride said.
In a Friday conference call outlining the announcement, an excited SCO president and CEO Darl McBride touted the financing deal as "monumental," and deflected all questions about pending litigation as "irrelevant" to the funding news. According to McBride, the financing and the lawsuits are two separate issues entirely, and with a partner such as BayStar in its corner, SCO is now prepared to tackle whatever comes its way. And
E-Commerce News says there may be acquisitions or new "strategic partnerships" as a result of this deal:
"The momentum in the marketplace continues to shift in our direction," he said of his company, formerly named Caldera Systems.
"We believe we have secured the capital necessary to fund all aspects of the long-term growth of this company" . . . .
With this in mind, Deutsche Bank praised SCO on Friday with a strong "buy" rating, the same rating the investment and securities firm had delivered in a report issued earlier this week. In a new report, Deutsche Bank analysts Brian Skiba and Matthew F. Kelly reiterated the $45 stock price they projected on Tuesday, adding that with $50 million from BayStar in the bank, SCO should have the resources to overcome any litigation.
"We view this financing as a positive sign the company is increasingly equipped to take on larger challenges ahead," the authors wrote in the new report. "The funding puts to rest any concerns about sufficient cash to pursue legal challenges and ongoing investment."
BayStar Capital, whose other investments include Sirius Satellite Radio, Commerce One and Evolve Software, will provide SCO with the $50 million in cash in exchange for an approximately 17 percent stake in the software company. ... Over in England, a spokesperson for IBM says Linux is "totally unstoppable" and that IBM "shed our proprietary mindset" in 1995.
SCO also left open the possibility that it could make acquisitions or other moves, saying the cash could pave the way for "new strategic partnerships." The investment brings SCO's total cash on hand to about $61 million."