Laurent Lachal
SCO: taken over, slightly richer, but still on its way out
Last week, the Board of Directors of US-based SCO Group, Inc. (SCO) announced that it had agreed to a reorganisation plan financed to the tune of up to $100m by US-based Stephen Norris Capital Partners (SNCP) and unnamed 'partners from the Middle East'. SCO markets Unix software technology and mobile services. SNCP is a private equity investment partnership that stated its intention to move SCO out of bankruptcy in 2008 and take it private to achieve two objectives. Comment: Ovum has been dismissive of SCO's legal claims ever since the company first aired them. This latest twist does not change our mind, on the contrary. Like many others, we are puzzled by SNCP's decision; puzzled but not completely surprised. After all SCO had been desperately trying to find a new financial backer ever since the August 2007 legal setback against Novell which affirmed Novell's, rather than SCO's, ownership of the Unix copyrights. This setback caused SCO to file for bankruptcy in September 2007 and to announce a plan to sell its Unix assets to JGD Management Corp/York Capital Management LLC for up to $36m a month later. The plan failed. It has now found a Plan B with SCNP. SCNP has stated two objectives for its investment. First, it intends to take advantage of SCO's 'vast range of products and services, including many new innovations ready or soon to be ready to be released into the marketplace'. Second, it intends to see SCO's legal claims (mostly against Novell over Unix ownership rights and IBM over Linux impinging on these rights) 'through to their full conclusion'.The first objective is pure fantasy. SCO has dwindled to an almost empty shell with revenue of $22m and losses of nearly $7m in fiscal 2007, more than $250m of debt and a workforce recently down by more than a quarter to about 80 employees. There may be some hidden gems in its technology for SCNP to take advantage of but we very much doubt it. The second objective is also fanciful. SCO is more likely than ever to lose its various legal battles over Unix ownership rights, although the new funding does make it possible for the company to keep on fighting and thus delay its eventual failure. Ovum believes that SCNP has two other, completely different, objectives in mind. First, it intends to boost the fear, uncertainty and doubt that results from its legal claims over Linux. Second, it intends to sell SCO to either IBM or Novell as part of an out-of-court settlement over this legal challenge. It gambles on the fact that IBM or Novell will prefer to pay up rather than keep on fighting.
