Analyst Sees Microsoft Worth Less Broken Up
The combined value of three separate Microsoft companies could be as much as 10% less than the $323-billion value of the software behemoth as it now stands, an influential Wall Street analyst said Thursday.
Rick Sherlund, who follows the software industry for Goldman Sachs, said he believes three small versions of Redmond, Wash.-based Microsoft could even be worth 15% less when the added costs of doing business--sales, offices and administration--are taken into account.
“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,” Sherlund wrote in a research report Thursday.
A splintering of the company also could erode industry support for Microsoft’s software products, including a new Internet strategy that it plans to unveil June 1, said Sherlund, who has covered Microsoft since it went public in 1986.
Microsoft shares fell $4.06, or 6.2%, to a 52-week low of $61.50 on Thursday in moderately heavy trading on Nasdaq.
The company’s shares are off 19% for the year, and 47% over the last 12 months.
Sherlund’s report came a day after U.S. District Judge Thomas Penfield Jackson raised the possibility of splitting the company into three pieces, instead of two.
The federal judge has been presiding over the landmark antitrust case that has pitted the U.S. Department of Justice against the software titan.
Jackson rejected Microsoft’s bid for more time and questioned whether the government’s proposed two-way split was strong enough to curb Microsoft’s monopolistic power--a move Sherlund called a “stunning defeat for Microsoft.”
Jackson appeared to favor dividing the company into three parts: one for its Windows operating system, another for its Web browser and a third for its Office business software.
Brian Goodstadt, a financial analyst for S&P; Equity Group, said Microsoft’s sagging stock price reflects the worst-case scenario of a three-way breakup.
“I don’t think any breakup is good for shareholders,” Goodstadt said. “It would be hard for me to believe that any government action would be better for shareholders than any action Microsoft would take.”
While Microsoft has said it will appeal Jackson’s final ruling, the company faces more immediate challenges.
Next week, Microsoft will unveil its new Next Generation Windows Services strategy, which aims to merge the Windows operating system with the Internet to create new online services.
Microsoft must persuade its partners and software developers that it’s still business as usual.
