SCO claims it has Unix business buyer

. . . keeping an eye on the penguin

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Oct. 24, 2007

No one would buy this plot element in a TV drama like Boston Legal, but The SCO Group claims it has a buyer lined up, a subsidiary of York Capital Management that wants to buy its Unix business and associated Linux lawsuits.

One might well ask, "What business?" SCO is in danger of being delisted from the Nasdaq stock exchange; it's filed for Chapter 11 bankruptcy; it's lost all claims to the Unix IP (intellectual property) to Linux rival Novell; and its Unix business continues to decline and lose money. Who would want to buy such a company's assets?

Well, it would seem "a newly formed entity affiliated with one or more funds managed by JGD Management Corp. d/b/a (doing business as) York Capital Management" wants to buy SCO's Unix business and, except for its cases against Novell and IBM, all of its Linux lawsuits. For this, according to the Term Sheet (PDF) that was filed with the bankruptcy court, York is willing to pay up to $36 million for SCO's properties. On Oct. 24, at close of market, an unimpressed stock-buying public was still paying 28 cents per share for the company. SCO currently has a market capitalization of slightly over $6 million.

The $6 million, of course, is before any of SCO's creditors are paid or Novell receives its share of SCO's Unix revenue. Most observers expect the U.S. District Court will award Novell, once SCO's bankruptcy case is done or Novell succeeds in moving this issue back to the District Court, as much as $25 million in unpaid Unix licensing fees.

York Capital Management, a New York-based private investment fund, is believed to manage more than $11 billion in assets. For York, this deal would amount to buying SCO's Unix properties with pocket change.

A closer look reveals that York isn't really offering that much for SCO. Only $10 million of the deal is in cash. SCO also gets what boils down to a $10 million line of credit to use in its court battles with Novell and IBM. In the event that York's lawyers actually manage to get money from any of SCO's other Linux litigation, SCO would get 20 percent of any court-ordered awards up to $10 million. Finally, SCO gets up to $6 million from any joint sales with York of its mobile software lines, Me Mobile and HipCheck.

Before this deal can go through, the bankruptcy court will have to approve it. SCO claims that the deal must be made by Nov. 9, and the court has already scheduled its first hearing on Nov. 6.

In the event that the purchase is allowed, we can look forward to SCO's--or should we say SCO's and York's--anti-Linux cases continuing on well into 2008 and perhaps even beyond.

—Steven J. Vaughan Nichols

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