The Royal Bank of Canada is walking away from a $30m
investment it made in the SCO Group last October.
The Royal Bank sold off its SCO holdings in two financial
transactions.
"We've unwound our position," said Paul Wilson, a spokesman for
the Royal Bank's Capital Markets group. He declined to comment on
why the Royal Bank had sold the stock.
Ironically, two-thirds of the Royal Bank's SCO stock was sold to
BayStar Capital, the investment firm that was the other investor in
the October deal, which totalled $50m, after it was introduced to
SCO by Microsoft.
In April, BayStar accused SCO of breaching parts of its
investment agreement, and asked that its $20m share of the deal be
returned.
A BayStar spokesman declined to say what his company had paid
for the 20,000 shares of SCO preferred stock it purchased this week
from the Royal Bank, or why BayStar would purchase stock in SCO
just one month after asking for its money back.
"The timing and price of our purchase of [the Royal Bank of
Canada's] holdings in SCO presented a strategic and financial
opportunity for BayStar and its investors," he said.
BayStar has had concerns over SCO's "failure to take the
appropriate steps to leverage the intellectual property asset that
they have", the spokesman said. But, he added, "we continue to
believe that there is a valuable IP asset in SCO and that it is one
that could generate a return for all the shareholders of the
company."
The Royal Bank's other 10,000 shares are being converted to
740,740 shares of SCO common stock at the rate of $13.50 per share,
which means that the Royal Bank paid more than twice the current
value of SCO's common shares. On Friday afternoon, SCO common
shares were trading at $5.90.
This means that the Royal Bank will, most likely, take a loss on
the deal, said Dion Cornett, an analyst with Decatur Jones Equity
Partners.
The Royal Bank's moves will put pressure on SCO's stock price,
make it difficult for SCO to raise future funds, and the fact that
BayStar has acquired more SCO stock may even be an indicator that
the investment company is planning legal action against SCO.
"It's bad news for SCO on three fronts," Cornett said. Ownership
of more shares in SCO, for example, might give BayStar greater
standing in a possible lawsuit against the company.
SCO downplayed the effect of the Royal Bank's actions. "It
really has no impact from a financial standpoint because the $50m
investment continues to reside with SCO," said SCO spokesman Blake
Stowell.
SCO claims that Linux violates its IP, and has become involved
in lawsuits with IBM, Novell, Red Hat and two Linux users in
connection with these claims.
Robert McMillan writes for IDG News Service