The Overlooked Corporate Finance Problems of a Microsoft Breakup

Lucian Bebchuk () and David I. Walker

No 8089, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper identifies problems with the ordered breakup of Microsoft that seem to have been completely overlooked by the government, the judge, and the commentators. The breakup order prohibits Bill Gates and other large Microsoft shareholders from owning shares in both of the companies that would result from the separation. Given this prohibition, we show, dividing the securities in the resultant companies among the shareholders is not as straightforward as the government has suggested. Any method of distributing the securities that would comply with this mandate would either (i) impose a significant financial penalty on Microsoft's large shareholders that is not contemplated by the order, or (ii) create a risk of a substantial transfer of value between Microsoft's shareholders. In addition to identifying the difficulties and costs involved in the two distribution methods that would comply with the cross-shareholding prohibition, we examine how the breakup order could be refined to reduce these difficulties and costs. The problems that we identify should be addressed if a breakup is ultimately to be pursued and should be taken into account in making the basic decision of whether to break up Microsoft at all.

JEL-codes: G30 K21 (search for similar items in EconPapers)
Date: 2001-01
Note: LE
References: Add references at CitEc
Citations:

Published as "The Overlooked Corporate Finance Problems of a Microsoft Breakup" The Business Lawyer, Vol. 56, No. 2, pp. 459-481 (2001).

Downloads: (external link)
http://www.nber.org/papers/w8089.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8089

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8089

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().