Microsoft: Breakup Is Unnecessary

By EUN-KYUNG KIM, Associated Press Writer

WASHINGTON (AP) - A proposal to split up Microsoft Corp. (NasdaqNM:MSFT - news) into separate companies is among a ``full array of options'' being considered as remedies against the software maker.

A Microsoft spokesman denounced the proposal as ``extreme and radical.''

Attorneys for the Justice Department and the 19 states that successfully sued Microsoft for antitrust violations are considering ways to break up the company as a method to curb anticompetitive practices. One reported option would be to split the company into two or three parts, each selling separate products, such as the Windows operating system and Internet content. Another alternative would be for Microsoft to divest its popular Office software.

Any kind of divestiture is part of a ``full array of options'' being discussed, a source close to the talks said Monday.

The news of a possible breakup contributed Monday to a 16 percent plunge in Microsoft shares, by $12.311/4 a share to $66.62, in trading on the Nasdaq stock market. Investors also were disheartened by a mediocre earnings report last Thursday and resulting stock downgrades by analysts at SG Cowen Securities Corp. and the Goldman Sachs Group.

The government and the states have the option of filing separate recommendations, but both sides hope to turn in a single proposal. Each has until Friday to submit proposed remedies to U.S. District Judge Thomas Penfield Jackson, who ruled April 3 that Microsoft illegally used its dominance in the operating systems market to hurt competition. The ruling came after a 78-day trial that began in October 1998.

``There is nothing in the trial record or in this case that would justify such an extreme and radical remedy,'' Microsoft spokesman Jim Cullinan said Monday. ``This would be bad for Microsoft, consumers and the entire industry.''

A court hearing to consider remedies has been scheduled for May 24.

Plaintiffs in the case also are considering temporary sanctions that could be imposed against Microsoft while the case makes its way to the appeals court, said another person familiar with the talks.

Microsoft has until May 10 to respond to the government's proposal, but it may ask for an extension depending on the remedies requested.

``If the government goes beyond the scope of this trial with the issues they raise in their filing, we're going to need an appropriate amount of time to respond,'' Cullinan said.

The Wall Street Journal, USA Today and The Washington Post reported Monday that the government favored a breakup of the company, although details varied regarding how parts of the corporation would be spun off.

None of the plans would require Microsoft to separate its Web browser from Windows. The company's bundling of the two products was a major issue in the government's lawsuit against Microsoft, Cullinan noted as he contended that divesting Windows or Office from the company would not be justified.

If the Justice Department calls for breaking up Microsoft, it would be the agency's first such action since the 1974 antitrust suit against AT&T Corp. (NYSE:AWE - news) that led to the breakup of the telephone giant.

Microsoft has already made clear that it will appeal the ruling against it. The case is considered likely to be end up before the Supreme Court.