SCO: Will the Fat Lady Ever Sing?

Anyone with an interest in open source is probably familiar with the shenanigans carried out by SCO, which has spent the past five years suing IBM, Novell, and a few others over allegedly misappropriated intellectual property. As a legal strategy, this has been spectacularly unsuccessful, and continued adverse rulings threw the company into Chapter 11 bankruptcy last September. Many open source advocates breathed a sign of relief in the expectation that IBM would finally put SCO out of everyone's misery. But it's not looking so simple now.

Out of the blue, so it seemed, SCO announced that Stephen Norris Capital Partners was going to bail them out of bankruptcy by putting $100 million into the kitty. SCO has now filed paperwork with the bankruptcy court, including a Disclosure Statement [PDF], that make the details of their future plans a bit more clear.

Here are the broad outlines of the deal: SNCP is going to invest $5 million immediately to buy a new run of Series A Preferred Stock (which they can convert at any time to a controlling interest in the common stock), plus Board of Directors control. This money gets turned around immediately to pay off claims and get the company out of bankruptcy. Meanwhile, they also make available a $95 million loan (at outrageous interest rates), for working capital and lawsuit expenses, including (potentially) paying judgments. Depending on how much of this loan is actually taken, SNCP can end up with up to 85% of the common stock.

There are a whole bunch of other stock maneuvers, the effect of which is to allow SNCP and management to decide what to do in the future without worrying about the current, possibly pesky, common stockholders. But there are enough hints to see that they still intend to pursue the lawsuits, and still project potential big wins. There's also a mention of new business plans coming in the August 2008 timeframe:

"The go-forward strategy announcements wil include new management, new partners and new products aimed at making SCO the leading platform software provider to the emerging global growth markets (Middle East, Afrca [sic], Brazil, Russia, India and China); and to the SCO Group installed base of milions of servers.

It's probably no accident that those potential arenas of increased business are all places where prosecuting a lawsuit and chasing assets to satisfy a judgment might be difficult.

One other provision of the reorganization plan will delight many open source advocates: "the Plan requires a change in the Company's Chief Executive Officer. Darl McBride will no longer serve as the Company's CEO and a new CEO wil be named by the Board on the Effective Date." McBride has made it clear to the press that he's not leaving of his own accord,and though some people may be sorry not to have him to kick around any more, it's unlikely that his removal from the stage will cause any open source fan any pain.

So what's the bottom line here? At this point, it's all up to the bankruptcy judge, whose job it is to balance the interests of everyone involved. If he digs into this plan and decides that it's too unfair to the current stockholders, he could torpedo it. But given that the money is there to pay off the debts that put SCO into bankruptcy in the first place, in the form of cold, hard cash, it seems more likely that the plan will be approved - and we'll be back to depending on IBM's lawyers to continue their aggressive attempts to wring a song from the fat lady. Fortunately for open source, IBM has shown no sign of backing down through what has become a ridiculously long process.