Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: JC Jaros who wrote (45410)	5/25/2000 10:47:00 PM
From: Thunder	Read Replies (2) \| Respond to of 74651

To All: From the W.S.J. U.S. to Keep Plan to Cut Microsoft In Two, Despite Talk of 3-Way Split By JOHN R. WILKE Staff Reporter of THE WALL STREET JOURNAL May 26, 2000 WASHINGTON -- Federal antitrust enforcers won't seek a three-way breakup of Microsoft Corp. Friday, and instead will make only minor changes in their initial breakup plan, officials said. The proposal to be filed in U.S. District Court here by the Justice Department and 17 states calls for splitting the company into two, essentially as proposed April 28. One company would be based on Microsoft's Office software and Internet businesses, the other built around its Windows operating-system software, the source of Microsoft's monopoly power. The plan will also call for far-reaching restrictions on the company's conduct while any appeals are pending. U.S. District Judge Thomas Penfield Jackson broached the possibility of a three-way breakup Wednesday when he questioned the government on its proposal. He asked the government to refile its plan, signaling that he may be prepared to order a breakup, then abruptly ended the landmark antitrust trial on its 79th day. Government officials say they will ask that any breakup order be stayed by the court to allow Microsoft to appeal. After Microsoft files its appeal notice, the government has 15 days to decide whether to seek immediate review by the Supreme Court, bypassing the U.S. Circuit Court of Appeals for the District of Columbia, which reversed Judge Jackson earlier in a related case. A direct appeal to the high court is permitted under antitrust law for some major cases. That decision is in the hands of the Solicitor General, in consultation with Joel Klein, the Justice Department's antitrust chief, and the attorney general. Mr. Klein hasn't decided the matter, and would likely wait to study Judge Jackson's ruling before taking such a step, but many participants in the case expect him to seek an immediate Supreme Court review. Trade Group's Plan In Wednesday's hearing, Judge Jackson pressed the Justice Department's trial counsel, David Boies, on why the government chose a two-way breakup, raising a concern that it would leave two monopolies in the place of one. The judge also spoke approvingly of a plan submitted by an industry trade group that would have gone further, spinning off a third company based on Internet software. Mr. Boies said various three-way breakup proposals were rejected because they would be inefficient, disruptive or harmful to consumers. Part of the reason behind the rejection of one form of the three-way split is the Justice Department economists' surprising conclusion that competition doesn't really work in the operating-system market anyway. The department, however, is making changes in the proposed breakup plan that would alter the definition of a restricted class of shareholder to one owning 5% or more of the company's stock outstanding, thus exempting the company's co-founder, Paul Allen, from the provisions of the plan. He still owns about 4% of Microsoft stock. The provision's creation of a restricted class of stock was intended to prevent Microsoft's Chairman Bill Gates and Chief Executive Steve Ballmer from controlling both of the new companies the way they do Microsoft itself now. Other planned changes are intended to clarify potentially ambiguous definitions, such as the difference between a "technology" and a "product." At the judge's urging, officials even plan to clarify the definition of the word "Microsoft" itself. Quick Appeal Vowed Microsoft officials vowed a quick appeal of any breakup order. Some said they would make an issue of the judge's refusal to allow more than a single day's argument on what amounts to a proposal to fundamentally restructure one of the New Economy's most important companies. The judge, however, noted that the case had been pending for two years and that he was simply eager to get it to an appellate panel. Still, some legal experts questioned his decision to order a sweeping remedy without a more extensive hearing. Even some in the government camp were surprised by the speed with which the judge acted, worrying it would give Microsoft another appeal issue. Microsoft shares fell sharply Thursday as investors weighed the implications of a drawn-out court battle over a breakup. After gaining Wednesday, the stock fell 6.2% Thursday, closing down $4.0625, at $61.50, in 4 p.m. Nasdaq Stock Market trading. Investors were also rattled by comments by an influential Goldman Sachs analyst, Rick Sherlund, who said investors would be hurt in a breakup. "We continue to believe the stock is worth less if the company is dismembered, and the duplicate costs, loss of development momentum and risks of loss of key employees are all among the many concerns if Microsoft were not to win on appeal," Mr. Sherlund said. Write to John R. Wilke at john.wilke@wsj.com public.wsj.com