MESSAGE
| DATE | 2004-04-19 |
| FROM | From: "Inker, Evan"
|
| SUBJECT | Subject: [hangout] SCO investor wants out of deal
|
SCO investor wants out of deal
BayStar Capital alleges that SCO breached an agreement between the two
companies
News Story by Robert McMillan
APRIL 19, 2004 (IDG NEWS SERVICE) - BayStar Capital, the investment firm
that Microsoft Corp. introduced to The SCO Group Inc., is looking for a way
out of its $20 million investment in the Unix company, according to a SCO
spokesman.
"We received a letter from BayStar [Thursday] indicating that they believe
that we had breached some sections of the exchange agreement that we had
entered into in February," said SCO spokesman Blake Stowell. "They are
asking us to redeem their shares based on the allegation that we've breached
their agreement."
SCO declined to provide copies of the BayStar letter but claimed that it
didn't provide specific information on the alleged breaches. "There isn't a
single person at our company that knows today why [BayStar] believes we've
breached some terms of the agreement," Stowell said.
BayStar was the lead investor in a $50 million deal that was first announced
in October 2003 and amended in February. Last month, BayStar acknowledged
that Linux rival Microsoft Corp. had made the introductions that led to the
deal.
The investment has been seen as crucial in allowing SCO, which posted a $2.3
million loss in its most recent quarter, to continue with its
multibillion-dollar lawsuit against IBM over that company's contributions to
the Linux operating system. Linux advocates have criticized it as a proxy
investment by Microsoft designed to undermine the credibility of Linux.
The news that BayStar now wants its money back was not well received by the
market. SCO's stock was down $1.30, or 13%, on Friday.
"The short investors got a gift today," said Dion Cornett, an analyst at
Decatur Jones Equity Partners LLC, an equity research firm based in Chicago.
"The lead investor for SCO that had access to all the information that we
wish we had access to, they're asking for their money back. And not only are
they asking for their money back, they are basically asserting material
breach of representation and warrantees."
Cornett said it was unlikely that BayStar would get its money back, because
BayStar's agreement with SCO doesn't include contractual terms allowing
BayStar to demand redemption. "This does not jeopardize SCO's ability to
pursue their lawsuit against IBM," he said. "What it does jeopardize is
their ability to get future investors."
The Royal Bank of Canada, which contributed the other $30 million to the
February deal, is "aware of what has transpired between BayStar and SCO" and
is "looking at the situation," according to Paul Wilson, a spokesman for the
Royal Bank's Capital Markets group.
Wilson declined to comment on whether the Royal Bank would be asking for its
money back as well. "Right now, the issue is between BayStar and SCO," he
said.
BayStar declined to comment.
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