Community: SCO Buys Back Stock, Will it Backfire?

[ Thanks to Uno Engborg
for highlighting this article. ]

By Lewis A. Mettler

A struggling technology company does not commit almost 25% of
their cash reserves to buy back company stock. At least not one
with any common sense. And, they do not put that decision in the
hands of management either. This is simply a scheme to prevent the
stock value from collapsing. SCO as a company simply does not need
its own stock “to use as they see fit.” Rather SCO thinks the stock
price must be supported.

And, it is likely to backfire because when a company buys back
their own stock all they really do is leverage up the outside
investor’s interests. As fewer and fewer outside investors own SCO
stock, the stock simply becomes highly speculative and subject to
more and more abuse and control by insiders (i.e., SCO management
in this case). It also means that stockholder’s assets (corporate
cash on hand) are being used outside their control to increase
their interest in SCO.

So if you thought you had a million or so invested in SCO, you
were wrong. SCO is going to increase your interest by taking
valuable cash and paying off some stockholders to go away. That
greatly increases the leverage by remaining stockholders but is out
of their control. The same individuals filing the ill-conceived law
suits are also manipulating the SCO cash and increasing the
leverage and risk for SCO stockholders.

Buying the company stock is fine under normal circumstances. But
here it is a clear tip to the SEC that stock manipulation is going
to be picked up. SCO simply does not need the stock. It needs to
create an artificial market.

SCO is on the verge of running out of cash because of its huge
legal bills and failing business. Apparently SCO thinks that
keeping the stock price high by this kind of manipulation is more
important than having cash in the bank when they are in serious
trouble both technically and legally.

Here comes the SEC.

[Editor’s Note: This article was reprinted with the author’s
permission from Lamlaw.com.]

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