Can you explain, if Microsoft is split up, what would happen to the stock that is currently held by shareholders, and how the pieces might be more valuable than the whole?
Probably similar to what happened AT&T.
Hey, Microsoft, 99cents/share 
Which was?
When you know that your time is close at hand
Maybe then you’ll begin to understand
Life down here is just a strange illusion
How did AT&T fare after it was broken up? 100 shares of old ATT became 100 shares of new ATT (Ma Bell) plus 10 shares each of the “Baby Bells” (Ameritech, BellAtlantic, BellSouth, NYNEX, PacBell, SW Bell, and US West.)
Just after the breakup (late '83/early '84), the whole basket (100 shares Ma Bell & 10 each of the babies) was worth about $2130, of which Ma Bell was worth 89% of the total. After 10 years (early '94), the whole basket was worth almost $20,000. (All the stocks except Ma Bell split at least once in that time). In 1994, Ma Bell was still the largest single constituent of the basket, but it’s share of the total had fallen to about 27%. These figures imply a total average annual return for the basket of just about 25%, not counting dividends. These companies were all relatively high-yeild investments, so you can add roughly 5% for dividends, to bring up the total to about 30% per year.
By comparison, the average annual growth rate of the Dow Jones Indusrial Average in this period was only about 7.5%, lower than the long-term average of about 10%. Microsoft was a better investment in this period than AT&T, rising about 50% a year on average after it went public.
The situation has become more complicated since 1994, so I didn’t calculate the return after that. Several of the baby Bells have merged and AT&T has spun off Lucent Technologies.
Will Microsoft fare as well if it is broken up? Your guess is as good as mine.
Work is the curse of the drinking classes. (Oscar Wilde)
Geez. How did I miss this in my own forum?
At any rate, if MSFT ends up getting broken up, Bibliophage got the most likely way for it to happen. The spin-off of these “Baby Bills” would be a non-taxable event for MSFT shareholders, so instead of owning 100 shares of the parent, you would own 100 shares of the parent and X shares of, say, “Microsoft Office Corp” and Y shares of “Internet Explorer, Inc.” and whatnot.
Another, less likely alternative is for MSFT to sell whatever was necessary to comply with the judgment or agreement that comes out of the case. This is less likely for the twin reasons that a) any gain on the sale is taxable and therefore less likely to give the existing shareholders full value for the enterprises disposed of and b) the list of people/companies with enough money to buy any of MSFT’s major divisions is pretty short (shorter today).
How could the pieces be more valuable than the whole? Bibliophage explained how it happened with the bellcos. If some of Microsoft’s divisions were to be released from the control of the parent, they might become more valuable by making LINUX versions of it’s products, by “porting” itself more easily to non-desktop applications, or any of a hundred other ways. On the other hand, they may become less valuable by virtue of no longer having the Microsoft juggernaut to support them.
There are simply too many “ifs” for one to predict at this point whether the long-term value would be higher or lower or the same following any hypothetical breakup.
Ooh, a good place to ask my question. How do you find out about imminent IPOs? I’m specifically interested in Verizon, the new BEL+GTE company. I’ve fiddled around with the IPO links at various finance sites, but they’re all playing stoopid.
opus, thats the million dollar question. Most people like to keep IPOs relatively quiet and difficult to buy. Mainly so “they” can buy more of them at the low opening price. Its quite complicated with the odd politics of the matter, and the influence of the underwriters.
A good site to use is http://www.hoovers.com/
They have some very elaborate IPO data and a excellent beginners guide and description of terms and processes.