SCO to buy out equity investor BayStar

SEATTLE: SCO Group Inc., which is suing IBM and trying to extract royalties from other Linux users, said that it would buy out its largest private equity investor.

BayStar Capital, which led an investment group that paid $50 million for convertible stock in SCO, will sell its holding in SCO at a loss, with a total cash-out of about $23 million, well below the $40 million face value of SCO's A-1 convertible preferred stock.

BayStar will get $13 million in cash and 2.1 million shares of common stock in SCO, which is equal about $10.1 million at SCO's Nasdaq closing price of $4.81 on Tuesday.

BayStar, which specializes in making private equity investments in small- to medium-sized technology companies, recently led an investment of $82 million in Midway Games Inc.

SCO sued International Business Machines Corp. last year, claiming that the computer giant infringed on its technology by contributing key portions of Unix software, which SCO says it owns, to develop Linux.

BayStar initially funded SCO to help fund its lawsuit against IBM, but later renegotiated its deal with SCO to get veto power over some legal fees.

Linux, a software operating system that users can copy and modify freely, is based on its Unix software and has been adopted by businesses seeking to lower their technology costs.

SCO, based in Lindon, Utah, said that it will immediately retire the convertible shares, leaving it with only common stock outstanding.

© Reuters