SCO execs unloading shares
By Jonathan Berr
SCO Group executives have sold about 119,000 shares of their company since it filed a lawsuit against IBM in March and the stock price increased more than fourfold.
The company has accused IBM of illegally transferring software from the Unix operating system into Linux. SCO bought licensing rights to Unix in 1995 and is threatening to sue other companies that use Linux, which IBM backs as a cheaper alternative to Microsoft's Windows program.
Chief Financial Officer Robert Bench began the $1.2 million in executive share sales four days after Lindon -based SCO filed its lawsuit against Armonk, N.Y.-based IBM on March 6. Before Bench's sale, SCO insiders had not sold shares in more than a year, according to the Washington Service, a firm that tracks insider transactions.
"Insider sales picking up is a negative sign," said Richard Campagna, who helps manage $750 million as director of research for Cleveland-based Shaker Investments. Shaker, which owns no shares of SCO, has stakes in computer-related companies including Flextronics International.
SCO spokesman Blake Stowell declined to comment on the share sales. The company will comment on the sales when it announces fiscal third-quarter results Thursday, he said. The company has a market value of about $120 million and had 13.7 million shares outstanding at the end of April.
Last week, IBM filed a counterclaim against SCO, denying the allegations and accusing SCO of infringing its patents. IBM's Linux customers include Unilever NV, the world's largest maker of food and soap, and VeriSign, which registers Web addresses. Bench has sold 17,151 shares in three separate sales since March 10, reducing his holdings to 228,043 shares, according to the Washington Service and regulatory filings. Vice President Michael Wilson sold his entire stake of 12,000 shares between July 14 and July 18, the Washington Service said.
Some investors have bet that SCO may generate royalty sales from its dispute with IBM. Microsoft Corp., the world's largest software company, bought a license from SCO in May. Another Fortune 500 company purchased an SCO license, SCO said Monday. It didn't identify the purchaser.
David Boies' law firm, Boies, Schiller & Flexner, represents SCO. Boies represented former Vice President Al Gore in the 2000 election recount and tried the U.S. antitrust case against Microsoft.
At closing Monday, shares of SCO were down $1.46, or 14 percent, to $9.29, on the Nasdaq Market. IBM rose 14 cents, to $81.02, in New York Stock Exchange composite trading.
Other investors are betting against SCO. The amount of short interest in the stock rose more than tenfold between May and July, according to Bloomberg data. Investors sell a stock short to profit on any decline in the price.
SCO, which changed its name from Caldera International in May, has had one profitable quarter since it sold shares to the public in 2000. SCO consumed $14 million in cash in the fiscal year ended in October and had about $10 million in cash at the end of April. The company has no borrowings.
Linux, developed by Finnish programmer Linus Torvalds in 1991, is being expanded by thousands of volunteer developers. SCO has said it canceled IBM's right to use the Unix license and is seeking as much as $50 billion in the lawsuit. IBM has said SCO has no right to cancel the license. Red Hat Inc., which makes Linux business software, also has filed suit against SCO.
Some companies are avoiding or slowing their use of Linux out of concern they may have to pay a royalty to SCO, analysts have said.