Abstract

http://ssrn.com/abstract=271806
 
 

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The Overlooked Corporate Finance Problems of a Microsoft Breakup


Lucian A. Bebchuk


Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

David I. Walker


Boston University School of Law


The Business Lawyer, Vol. 56, pp. 459-481, 2001
Harvard Law and Economics Discussion Paper No. 296, 2000

Abstract:     
The 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.

Number of Pages in PDF File: 27

Keywords: Valuation, Microsoft, breakup, spin-off

JEL Classification: G30, K21, K22, K40, L40

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Date posted: May 31, 2001 ; Last revised: May 10, 2009

Suggested Citation

Bebchuk, Lucian A. and Walker, David I., The Overlooked Corporate Finance Problems of a Microsoft Breakup. The Business Lawyer, Vol. 56, pp. 459-481, 2001; Harvard Law and Economics Discussion Paper No. 296, 2000. Available at SSRN: http://ssrn.com/abstract=271806 or http://dx.doi.org/10.2139/ssrn.271806

Contact Information

Lucian A. Bebchuk (Contact Author)
Harvard Law School ( email )
Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)
HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
David I. Walker
Boston University School of Law ( email )
765 Commonwealth Avenue
Boston, MA 02215
United States
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