Royal Bank of Canada dumps SCO Group shares
BayStar moves in
Royal Bank of Canada (RBC) has washed its hands of SCO Group (SCOX), dumping all 30,000 recently-acquired shares into the lap of BayStar Capital. The venture capital firm, which considered walking away last month, is now in a powerful position to influence SCO's future direction.
RBC has sold 20,000 Series A-1 stock to BayStar Capital, also a SCO investor holding 20,000 Series A-1 stock in the company. RBC had invested $30 million and held 30,000 shares following a round of investment led by BayStar, which had sunk $20m into SCO. The bank's remaining 10,000 Series A-1 shares were converted into 740,740 shares of common stock.
RBC was believed to be unhappy with the level of attention SCO had succeeded in attracting during its Unix Intellectual Property (IP) litigation battle against IBM, Novell and a growing list of businesses running the Linux operating system. A bank spokesperson declined to give reasons for RBC pulling out, saying it would be "inappropriate" to comment.
The bank's decision to quit leaves BayStar in an incredibly powerful position to potentially affect SCO's management. BayStar last month asked SCO to return its $20m investment, having gone on the record saying SCO's management lacked the maturity to prosecute the IP actions, and it wished more experienced outsiders to be drafted in.
SCO, however, has expressed confidence in its management and unwillingness to return the investment. SCO's position will now be challenged, as BayStar holds the purse strings to a considerable investment. Ultimately it seems BayStar could be positioning itself for a hostile takeover, should SCO's management refuse to fall in line.
A BayStar take-over cannot be ruled out, as the decision to buy RBC's stock follows last month's attempt to withdraw its investment. BayStar likes to invest in companies with strong IP capital, and it believes in the merits of SCO's case. It seems, having at first attempted to pullout, BayStar may be digging in deeper in an attempt to turn its investment into a success.