Microsoft deal unlikely soon; Stock falls $1.625, less than expected after Friday's setback


After a weekend to think about a federal judge's finding that Microsoft Corp. is a monopoly, analysts said yesterday that any settlement between the software colossus and the federal government might still be far away.

Investors were surprisingly hospitable toward Microsoft shares, which were widely expected to take a beating in the wake of Friday's decision. The company's stock fell 1.78 percent, slipping $1.625 to close at $89.9375.

"I thought the stock would have gone down further than it has," said Paul J. Dravis of Banc of America Securities LLC in San Francisco. "The stock's holding up pretty well, considering."

Considering, that is, that Microsoft had just suffered a major setback in the most important legal proceeding of its corporate life. U.S. District Judge Thomas Penfield Jackson's finding went against Microsoft on almost every point, giving rise to speculation that the company might come to the settlement table rather than await Jackson's findings of law, which are expected to come out by early next year.

Those legal findings are not likely to go Microsoft's way. Robert H. Lande, a University of Baltimore law professor who has watched the case closely, said Microsoft might be wise to settle the matter to head off an adverse legal ruling. A legal defeat would not only open Microsoft to punishment in this case, but would also create a precedent that other companies could exploit in their lawsuits against Bill Gates' empire.

'In a state of denial'

However, Lande said that for now, Microsoft is unlikely to enter settlement talks. "They honestly believe that they have no monopoly power, that they're just a little corner grocery store someplace," he said. "They're still in a state of denial."

Microsoft spokeswoman Beth Jordan said yesterday: "There's been a lot of discussion as to whether Microsoft is more or less interested in settlement. We've always been interested in settlement discussions, but we have one fundamental issue the company's right to innovate upon a very popular product."

In other words, the impasse between the world's most powerful government and what is perhaps the world's most powerful corporation could last quite a while.

"I suspect the two sides will have talks, but I think there's no middle ground," said Tim Bajarin, president of Creative Strategies Inc. in Campbell, Calif. "I'd be really surprised if they came up with a settlement."

Stock rights itself

This state of affairs has done little to dim Wall Street's love affair with Microsoft stock. The company's shares bottomed out a bit in early trading, going as low as $84.375, but the stock quickly righted itself in extremely heavy trading.

By the end of the day, 121.91 million Microsoft shares had changed hands, making the company by far the most heavily traded equity on U.S. markets yesterday. The second-most-active issue, Inc., had less than a third as much activity.

Analysts said the modest nature of Microsoft's stock decline resulted in part from timing. Jackson released his 207-page factual finding at 6: 30 p.m. Friday, 2 1/2 hours after the stock market closed for the weekend.

Jackson's finding did Microsoft no favors, but the timing of its release ensured that investors would have two days to mull things over before trading resumed yesterday. That might have prevented panic sell-offs that could have sent Microsoft shares -- and possibly the rest of the stock market -- plunging.

"If the findings were released in the midst of trading, that would have really caused volatility in the market," said Evans K. Kissi of Joseph Stevens & Co. in New York.

Bulletproof reputation

An important factor buoying Microsoft yesterday, Kissi said, was the company's bulletproof reputation among investors.

"I think any time a blue-chip company like Microsoft falls, you always have investors who see this as a buying opportunity," Kissi said. "The company's business model is still intact."

Kissi said that even the worst outcome for Microsoft, a possible breakup of the company, is not fazing investors.

He pointed to the example of the 1984 dissolution of the old AT&T;, which spawned a potent and highly valued class of regional telephone companies such as SBC Communications Inc., which with Microsoft was added to the prestigious Dow Jones industrial average Nov. 1.

"Whenever a company has been ordered to break up, shareholders have really benefited," Kissi said.

Technology sector

Another point in Microsoft's favor yesterday was the good health of the technology sector. The Nasdaq market, which is packed with technology companies such as Microsoft and, gained 41.68 points to finish the session at 3,143.97.

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