SCO Tosses McBride Overboard, Continues Flying Lawsuit Flag

Unix software firm SCO Group announced a corporate restructuring plan Monday to sever ties with CEO Darl McBride and reduced the company's workforce. The restructuring was designed by the firm's Chapter 11 bankruptcy trustee, Edward Cahn.

These moves and other corporate adjustments will help the company continue its longstanding court battle against IBM (NYSE: IBM), Novell (Nasdaq: NOVL) and others for allegedly failing to pay licensing fees associated with their use of the open source Linux operating system, according to company officials.

SCO officials remained tight-lipped Tuesday, relying only on a series of statements posted on its Web site to reveal the latest corporate actions and the status of its Chapter 11 restructuring.

Chapter 11 court-appointed trustee Edward Cahn conducted an analysis of the company's operations and cost structure prior to initiating the restructuring plan, according to SCO.

"We saw a pretty broad reaction to terminating McBride. His name is synonymous with the legal fight," Jay Lyman, analyst with the 451 Group, told LinuxInsider.

Plan Details

By the end of next month, SCO officials expect to finalize details of Cahn's plan and reach a cash flow break-even point for core operations.

SCO officials eliminated McBride's CEO post along with that of the president's post. In addition, company officials described as "a modest reduction in SCO's workforce" as a contributing factor in achieving savings.

The current management team comprised of Chief Operating Officer Jeff Hunsaker, Chief Financial Officer Ken Nielsen and General Counsel Ryan Tibbitts will remain in those posts to work with the Chapter 11 trustee to implement the restructuring plan and move the intellectual property litigation forward with Boies, Schiller & Flexner.

The goal is to emerge from Chapter 11 bankruptcy.

Raising Capital

Another key, if not controversial, component of the restructuring plan is to raise more funds and sell non-core assets to bolster working capital. This will allow the trustee to preserve cash and the value of the business while enabling the SCO to proceed with asset sales , pursue litigation against former customers IBM, Novell and others and to continue supporting SCO's loyal UNIX customer base, according to SCO officials.

"These actions, while difficult, are essential to SCO becoming a more agile and efficient company, not just for this year, but for years to come," said COO Jeff Hunsaker.

Questionable Quest

SCO's decision to sell off Unix assets to continue funding the litigation is a big surprise, said Lyman. Why not throw out the litigation along with the architect of the litigation, he questioned.

"It doesn't make sense to keep the lawsuit. I question if SCO can ever return to its former dominance as a Unix software developer," Lyman said.

The decision to continue with the lawsuit is being driven by numerous competing forces, he suggested. However, the company long ago did the unthinkable by suing its customers, he said.

Legal Boost

Perhaps the decision to pursue the six-year-old legal battle with IBM and Novell was fueled by a favorable ruling in August by a federal appeals court.

The 10th Circuit Court of Appeals agreed that SCO's argument had merit. The company maintains that IBM and Novell illegally used the Unix operating system to make a crucial improvement that turned the Linux system into a competitor.

Still, Lyman said SCO may have missed a golden opportunity to shed the bad blood it created in the Linux and IT communities.

Era Passed

The restructuring of SCO marks the ending of an era, according to Rob Enderle, president and principal analyst of the Enderle Group.

"McBride drove SCO down an aggressive litigation path but lacked the background in the legalities," Enderle told LinuxInsider.

SCO was split into opposing factions over the lawsuit. The side backing the Linux litigation favored the sale of Unix assets and shedding the company of McBride, according to Enderle.