A divided Microsoft would have a lower stock value than the current company, said George Gilbert, senior vice president and co-portfolio manager of the Northern Technology Fund at Northern Trust.
The combined value per share from splitting Microsoft into separate operating system and applications companies would be roughly $55 to $65, he said. Today Microsoft was trading at $693/8 at midafternoon, down $13/8 from its close before Judge Thomas Penfield Jacksons ruling was issued yesterday.
If the ruling holds, Mr. Gilbert cited four reasons the combined value of two companies would be lower: 1) current management already would have split the company in two if they thought the pieces would be worth more than the whole; 2) the operating system company would be highly regulated under the ruling, giving it less flexibility in making technological innovations; 3) overhead costs would be duplicated; and 4) each companys growth rates would be more volatile than that of the combined entity, increasing risk for investors.
On the other hand, David Soetebier, senior technology analyst at Banc of America, is upbeat about Microsofts prospects, saying he sees value in its customer base. The customers will still buy, even if the company is split up, Mr. Soetebier said. Theyll go to two places instead of one if they have to, because its too expensive to start retraining people on a new system. Besides, consumers buy what they know.