Discontent with SCO spreads to backers

The largest investor in The SCO Group, Royal Bank of Canada (RBC), has sold most of its shares to SCO's second biggest investor, BayStar Capital.

Last Autumn, RBC invested $30m (£16.9m) and BayStar invested $20m (£11.m) in SCO, which is locked in a legal battle with IBM over the ownership of the intellectual property behind Linux.

RBC has now sold 20,000 of its shares to BayStar, purchased at $1,000 each, for an undisclosed price. The remaining 10,000 have been converted into common stock using a conversion price of $13.50 per share, giving it 740,740 shares.

Chris Pepper, a spokesman for RBC Financial Group, told vnunet.com that the move was a "business decision", but that the common stock investment meant that RBC was keeping its options open "to see what is best".

BayStar, which is now SCO's biggest investor, called last month for changes at SCO, maintaining that the company should rein in on spending and focus more on the legal battle. It has threatened to pull out of its investment.

BayStar did not respond to requests for comment from vnunet.com.

Since then SCO has appointed a new chief financial officer, Bert Young.

Blake Stowell, director of public relations at SCO, said: "At this point, the company's board has not given any indication that it has any intentions of making any management changes."

The company also laid off "less than 10 per cent" of its 275 workforce a few weeks ago. Stowell said that the redundancies came from sales, marketing, administration, professional services and engineering.

"This move by RBC does not change the $50m cash funding that SCO received as a result of the RBC and BayStar investments from last October," said Stowell.

But Gary Barnett, principal analyst at Ovum, stated: "It does not bode well for SCO's lawsuit. If RBC thought SCO would win - so that shares would double in value - it wouldn't be seeking to back out, would it?"