What is SCOX really worth?

El Corton

December 4, 2006

The most optimistic, but still plausible, scenario I can imagine for SCOX shareholders is as follows:

Darl resigns, taking his crew with him. A new, clean management team is hired by the board (such as Mustard at Canopy.)

The new management decides to settle the lawsuits on the best terms possible, and liquidate the company. The poison pill won't be activated. Proceeds will be distributed to the shareholders of record.

The new SCO agrees to drop all legal claims against all parties, to admit publicly that said claims are, and always were, completely without foundation, and to forswear any UNIX-related litigation against anyone on behalf of itself and its successors. In return, IBM, Novell, and Red Hat agree to drop their claims. No money changes hands. I don't think this is impossible.

SCO has no assets of value other than cash, securities, and receivables. Everything else is written down to zero. Possibly as much as $9 M can be realized this way.

As provided in the Revised Engagement Letter, the Three Original Firms (BSF, Kevin, and Berger Singerman) take 1/3 of the gross proceeds as a contingency payment. That leaves $6 M. The shareholders realize about $0.28 a share.

This scenario is not what I expect to happen -- not with Ralph "To our utter destruction" Yarro in control -- but it's not unreasonable.

2:22:21 PM


Re: What is SCOX really worth?

erp_expert

December 4, 2006

> The new SCO agrees to drop all legal claims against
> all parties, to admit publicly that said claims are,
> and always were, completely without foundation, and to
> forswear any UNIX-related litigation against anyone on
> behalf of itself and its successors. In return, IBM,
> Novell, and Red Hat agree to drop their claims. No money
> changes hands. I don't think this is impossible.

If TSG were in a situation where it had no choice but to make that statement, why would IBM agree to drop their counter-claims? Why wouldn't they just take ownership of TSG, fold the SCOUnix(tm) support business into their AIX support businiess, and let the salesdroids get to work converting those accounts to Linux(tm)?

You can only negotiate when there is a 10, or at most 20, percent difference of strength between you and your opponent. When you are exhausted, out of resources, and your back is against the wall your opponent has no incentive to negotiate or settle.

EPR Expert

2:25:58 PM


Re: What is SCOX really worth?

El Corton

December 4, 2006

< If TSG were in a situation where it had no choice but to make that statement, why would IBM agree to drop their counter-claims? Why wouldn't they just take ownership of TSG, fold the SCOUnix(tm) support business into their AIX support businiess, and let the salesdroids get to work converting those accounts to Linux(tm)? >

Because SCO has nothing that's of any tangible value to IBM, not of value close to what IBM has spent on the litigation. IBM will recover those costs, if at all, from others.

If the litigation plays out to the end, most likely there will be no determination on the two issues of strategic importance to IBM: that its Linux activities don't (a) infringe any copyright, or (b) breach any contract. It won't be out of the question that Novell, one of its successors, or one of the many other genuine UNIX copyright holders (including, I believe, Microsoft) could try this again.

Rather than allow that to happen, IBM might prefer, if offered the choice, to draft a disclaimer to be signed on SCO's behalf by new management, making IBM's view of the case final, as far as SCO's interests are concerned. That still wouldn't bind the real copyright holders, but it would be a matter of public record that the one attempt to shake down Linux users for infringement was a confessed fraud from start to finish.

In any event, my point is not to predict a settlement, but to come up with a plausible fair value for SCOX. As of today, I don't think that value is zero, but it's a lot less than what SCOX is trading for.

3:32:47 PM


Source: Investor Village SCO Board [ http://www.investorvillage.com/smbd.asp?mb=1911, https://www.investorvillage.com/smbd.asp?mb=1911&mn=13731&pt=msg&mid=949069 ]

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