Much has already been made of a recent investment proposal filed by private equity firm Stephen Norris Capital Partners with the court overseeing the dwindling assets of the now bankrupt SCO Group. The story possesses all the ingredients of a sensational story: a high profile court case, an unnamed Middle Eastern investor, and a headline-grabbing $100 million dollar numbers.
Let me cut to the chase: this story is likely to be far less sinister than it seems. This is a proposal for an investment that still needs to be cleared by the bankruptcy court and found to be in the best interests of all of the interests before the court - creditors (including parties to litigation), equity holders, and others. SCO’s management can no longer accept such proposals on it’s own. Instead, when SCO sought bankruptcy protection, it also lost control over many aspects of how it runs its business, including whether it can enter into this type of transaction. Until it clears the court it is still just that – a proposal and not $100 million dollars in the bank for SCO to fight a pointless legal battle.
Actually let me be more clear: not only is there no $100 million dollars in cash in SCO’s bank account, but if the proposal is accepted, there will only be a conditional availability of that large number. The terms of the proposal are publicly available with the court, and what they show is that SCO would receive only $5 million dollars in cash - the rest could only be drawn down at an exorbitant rate of more than 17%. Not a very efficient cost of capital even when compared to some of the worst credit card rates in the market. This would be like me saying, “Jim Zemlin receives $50k investment” when I sign up for a new credit card.
SCO still has $20m in revenue from its Unix lines of business. (Albeit these revenues have been steadily eroding with the rise of Linux.) Its main cause of bankruptcy has, of course, been its misguided and fruitless (and endless) legal battles.
When you look at the facts here what makes for a great story will be very likely to turn out to be much ado about nothing. What we are seeing is a speculator picking the bones of a defunct company. The facts of the SCO case haven’t changed; the Linux industry is stronger than ever.
It doesn’t make for quite as enticing of a headline, but it’s reality.