Another subpoena from IBM. This one is to Houlihan Valuation Advisers, which did a secret evaluation of Caldera in 2001, shortly after it bought the two Unix divisions of Santa Cruz. Here is the complete filing:
It's looking very bad for SCO.
In part 3 of the valuation, Houlihan writes:
- Linux will become a mainstream server operating environment in most markets;
- Most Unix software will have been ported to run on Linux;
- Linux will be present inside of access point devices;
- Standards will be fully in place creating a highly compatible environment across Linux distributions;
- Linux farms and grids will be an established replacement for super computing; and
- Every major and most minor hardware architectures will be supported.
As for Unix, Houlihan reported:
- Those Unix companies that survive will position themselves as similar to Linux and try to ride on Linux's coattails;
- All Unix solutions will have significant compatibility with Linux;
- Unix will be unified as a Linux look-alike; and
- Corporate computer room Unix will be surround (sic) by distributed Linux and Windows systems
Now do you see why IBM decided Project Monterey was dead in the water? And please note the date. This valuation was prior to IBM's contributions to Linux that SCO listed as making Linux ready for the enterprise. To hear SCO tell it, without IBM, Linux would never have been enterprise ready. Was that true? Worse, did they know better when they said it?
And how was Caldera doing as a company back then? The report:
In summary, the recent overall financial performance of the Company was inferior to that of the average company in the industry in many respects. Its income statement was weaker in terms of gross sales, operating margin and net margins; its asset composition was less liquid; fixed asset and total asset turnover ratios were lower indicating less efficiency in operations; and its profitability was considerably lower. However, Caldera was less levered in terms of total debt to equity compared to its peer group....Caldera has exhibited a considerably inferior operating margin compared to its industry peers (55.9%) vs. 4.0% (see Exhibit #7. Accordingly, a discount factor of 75% is applied to the median 92% revenue multiple to account for the Company's inefficiencies.
Application of the 75% discount to the median revenue ratio of 92.0% results in an adjusted ratio of 23%. When this adjusted ratio is applied to Caldera's FY 2001 revenue of $110.5 million, a market value estimate of $25.4 million is reached. Because the book value will be written down significantly due to impairment of goodwill and intangible assets, they only instructive valuation benchmark is the price to revenue ratio.
This just doesn't match the story SCO told the court, and it impacts not only the damages they could get even in some favorable alternate universe where SCO could win the case; it also impacts, I'd guess, the damages they will have to pay IBM for saying that IBM destroyed their thriving business, which is what I remember them saying.
On a deeper level, since many of the board members are still there since 2001, what possessed them to toss Linux overboard and hire McBride in the summer of 2002 to try to give mouth-to-mouth resuscitation to Unix? Or was that just a ruse, a tableau, to position a lawsuit?