Bill Canaday wrote:
>Bay Star Capital just bought $20,000,000 worth of SCO to add to what they
>already had only a couple weeks after announcing that they wanted their money
>back. Hmmm ... what's wrong with this picture?
>
>To me, this has all the hallmarks of a first class run of the mill puppet
>show.
>
>Won't this give Bay Star controlling interest? And won't 740,740 shares of SCO
>common stock give Royal Bank of Canada a great deal of influence over the
>future of SCO? More than that, having been badly beaten down the past few
>months, the common stock is poised to appreciate quite a bit faster than the
>A series shares were. Except for those now held by Bay Star, RBC has not
>converted its shares to cash. Bay Star holds all the A series shares. RBC
>holds a substantial hunk of the common shares. The form has changed ... but
>not the substance.
>
>The 'little guy' has been run out of this stock. The big kids are buying it.
>This is usually a "buy" signal for the little guy that he ignores until it is
>too late to act ... and then he acts.
>
I don't think that's quite the case. If that was the game, Royal Bank
of Canada wouldn't have sold TWO THIRDS of their stock interest to
Baystar. They unloaded a majority of their equity before the stock
conversion, which doesn't track with any kind of power grab. Also, it
doesn't really fit with the announcement last month of Baystar's attempt
to get SCO to buy them out. There is a possibility that fits, though:
Since Baystar wanted SCO to reimburse them, and SCO was claiming Baystar
didn't have cause to force the refund, Baystar was in a bit of a bind.
It's not nearly as easy for a venture capital firm like Baystar to take
a case like this to court and win as it is for someone like the Royal
Bank of Canada, but RBC clearly wasn't as eager to take a hard line with
SCO. Thus, in order to get their reimbursement, Baystar needed
leverage. I think they probably approached a fence-sitting RBC and
offered to buy some of their A-1 stock with the condition that RBC would
convert the rest to common shares and unload it on the market, which is
much easier to pull off than brokering a deal to sell A-1 stock.
Converting to common shares, after all, is what a company with major
equity in another corporation does when they want to bail out. This
leaves Baystar with the only outstanding A-1 stock.
The SCO stock, of course, takes a value hit, first when the news of
RBC's bailout plans hits (this week), and again when RBC actually drops
the converted stock into the market and sells it all. SCO Group will be
smarting a little. At that point, Baystar can say "We can do that will
all the rest of this A-1 stock right now, or you can buy it back from us
to save yourselves the unrecoverable damage to your stock value."
They'll basically be holding SCO's financial life in their hands.
If anyone has any other ideas that would explain the facts, I'm all
ears, but this is basically all I've come up with so far.
-- Chad Perrin
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