New regulations have made it harder for small-cap companies to get noticed, but this is certainly not the case for The SCO Group (NASDAQ:SCOX). Whether you like him or not, CEO Darl McBride is a master of PR. In March, he sued IBM (NYSE:IBM) for $3 billion, hiring "take-no-prisoners" law firm Boies Schiller & Flexner, and raising a cool $50 million to pay for the battle.
Of course, mega-message PR has a downside: It demands a steady flow of mega messages. Last week, McBride declared in an open letter, "There is a group of software developers in the United States, and other parts of the world, that do not believe in the approach to copyright protection mandated by Congress ... The future of the global economy hangs in the balance."
Wow, McBride has elevated this thing to the pantheon of constitutional issues. Lawrence Lessig, a Stanford Professor of constitutional law, posted his own open letter, saying, "if you want a clue of just how clueless this case is, consider the constitutional arguments made by SCO."
Odds are the Constitution will survive this dispute. The big question is whether as much can be said for SCO Group investors.
Last Friday, the federal judge in the case ruled for IBM on two motions. The SCO Group must provide evidence of IBM's intellectual property violations within 30 days. This won't be easy during the holiday season (attorneys may have to make an upward adjustment on fees). The judge further ruled that IBM does not have to turn over source code to The SCO Group.
There's more. Also on Friday, The SCO Group postponed filing its fourth-quarter earnings report until December 22. The reason: To allow time to hammer out the details of its $50 million private placement.
While the company insists this would not affect its prior guidance for revenues of $22 million to $25 million, it does seem strange that a public company would have problems with what looks to be a relatively routine process. For short sellers, this is a textbook clue that there may be internal disarray or perhaps, even some finagling.
However it hakes out, the lawsuit has managed to make some noise and is creating some uncertainty -- if not headaches -- among some pretty heavy hitters. Count among them Novell (NASDAQ:NOVL), Dell (NASDAQ:DELL), and Hewlett-Packard (NYSE:HPQ). Not mention, some drama for investors.
More and more, SCO Group is like the mouse that roared. PR only goes so far. You have to back up with substance. The SCO Group has 30 days.
Tom Taulli is the author of six books on investing, such as Investing in IPOs (Bloomberg Press), as well as a professor of finance at the USC School of Business . You can reach him at[email protected].
