This is top-drawer coin-of-the-realm kind of money put together from the deep-pockets of the Middle East by Stephen Norris, the co-founder and former president of the ultra-posh Carlyle Group, the guy who had Prince Al-Waleed bin Talal Al Saud salvage Citibank on a cold call and turn a $15 billion profit on mere $590 million equity investment.
After leaving Carlyle, whose chairman is now ironically ex-IBM CEO Lou Gerstner and whose resources, shall we say, include from time to time politicos like the Bushes, père et fils, and former prime ministers like John Major, Norris started Stephen Norris Capital Partners LLC, another chi-chi private equity firm that’s done things like, oh, recapitalize Suez.
It’s Norris Capital Partners that’ll be buying at least 51% of SCO and taking it private.
We’re talking about people who can buy all the legal talent in the world who’ve looked at SCO’s evidence against IBM and Novell and Linux and think that – despite all the monumental setbacks – the case is still eminently winnable – and if not the case that’s filed then a new case they’ll file.
People who, if they do win, won’t just take IBM and Red Hat and Novell to the cleaners, they won’t have a bit of compunction or an ounce of political correctness about demanding a SCOsource tax from every Linux user on the globe.
We’re potentially talking billion here, folks, the only numbers these kind of people think in.
They also reportedly think that with them in the picture SCO can restart some of its Unix revenues and like the possibilities of its mobile technology. Heck, it might be a short-term investment, if a settlement offer come in and takes SCO out. Or SCO could eventually go public again.
Anyway, the way they get there from here is for Norris to buy 51%-85% of SCO, which yesterday had a market cap of all of $1.31 million, for $5 million and make the other $95 million available to SCO as a five-year line of credit secured by all of SCO’s assets and legal claims – present and future.
The memorandum of understanding between SCO and Norris was filed this morning with the bankruptcy court in Delaware as sort of a downpayment on a final, polished reorganization plan to be filed later to get SCO out of Chapter 11.
SCO was never really bankrupt – though it’s verging on it now – but in a clever legal move sought bankruptcy protection as sanctuary from the Utah federal court that it was afraid would slap it with a constructive trust and so prevent it from appealing the court’s devastating – and supposedly wrongheaded – summary judgment that Novell owns the Unix copyrights.
SCO will be asking the bankruptcy court to okay the Norris deal and release it from Chapter 11 but at the same time will also reportedly be asking it to stop Utah from confiscating its last dime before it can post bond and appeal to the Denver appeals court.
If Delaware, which has already claimed dibs on the imposition of any constructive trust, says no, the worst that can happen at this point is that SCO has to draw down the money to pay Novell from its interest-bearing $95 million line of credit, something it wants to avoid. But one way or another it’ll go to Denver, something neither IBM nor Novell reportedly want to see happen.
According to the MOU – which, by the way, specifically calls for “aggressively” pursuing SCO’s case against AutoZone as well as the Novell/IBM imbroglio – how much of SCO Norris and his money people get – 51% to 85% – depends on the amount of damages SCO ultimately has to pay to settle – by virtue of a “final, non-appealable judgment in the Novell/IBM litigation (or to settle the Novell/IBM litigation in a settlement transaction that requires a net payment to Novell/IBM).”
If it’s zero to $30 million, they get 51%. If it’s more than $30 million, they get 85%. If it’s somewhere in between then it’s pro-rated.
Given how slowly the law moves, particularly in this case, it could take a long time to get to any “final, non-appealable judgment” that, as the MOU anticipates, includes any Red Hat claims too.
SCO going private will give the Groklaw crowd one thing it’s always wanted – SCO CEO Darl McBride out.
Although McBride reportedly put this deal together, he’s too much of lightening rod to stay once the deal is done. He’s unlikely to go far; he knows too much. Maybe he’ll spend his idle hours sussing out who Groklaw really is.
Norris will get four seats on what will be a seven-man board. The remaining shareholders get the other three seats including one for the CEO and one for an outside director, an industry guy designated by a majority of the board. The MOU anticipates that the board will be indemnified “to the maximum extent permitted by law.”
Jeff Hunsaker, the company’s sales chief, who was named president and COO two months ago, will continue in that role.
SCO previously came up with the idea of selling Unix – but not its legal case – to an outfit in New York called York Capital for ~$16 million with York reportedly wanting to close by this past December.
The idea was abandoned after Novell objected and the bankruptcy court ordered the Utah trial to proceed on the theory that a decision on selling off assets would be kinda hard to make until SCO’s liability to Novell is known.
Novell claims it’s owed the millions SCO got from Microsoft, Sun and the aborted SCOsource Linux tax attempt.
The Utah trial is set to start on April 29.
What could kill the Norris deal is something turning up in due diligence or the court not approving SCO’s arrangement with its lawyers Boies Schiller or the MOU itself by April 28.
Meanwhile, according to what it’s been telling the SEC, SCO has started a “reduction in force,” cutting roughly 30 people or 26% of its workforce to “conform to its current objectives and opportunities.” In the year ending October 31 SCO lost $2.96 million on revenues of $21.6 million, with its Unix revenues down 26%, a fact it lays at Linux’ door