Microsoft Settlement Rumors Reverberate on Wall Street

Wall Street was set abuzz Wednesday morning by rumors of a possible settlement of the ongoing Microsoft antitrust trial.

The Redmond, Washington-based Microsoft has been jockeying back and forth over a settlement with the U.S. Department of Justice (DOJ) since early November, when U.S. District Judge Thomas Penfield Jackson ruled that Microsoft effectively operated a monopoly with its Windows operating system.

However, after meeting with Microsoft CFO John Connors, Goldman Sachs analyst Rick Sherlund said late Tuesday that Microsoft management “appears very focused on settling the lawsuit.” Sherlund, long considered an expert on Microsoft’s business dealings, was instrumental in taking the company public in 1987.

Can Microsoft Afford Not To Settle?

Just weeks ago, when closing arguments were being heard in the case, both sides indicated that a settlement was not imminent. However, since that time, mounting concerns among investors have caused Microsoft’s stock to take a 10 point hit, a plunge that most analysts agree could be reversed if a settlement is reached.

If market activity is the driving force behind a possible settlement, Microsoft management may demonstrate more flexibility in its approach to the settlement talks.

Although tight-lipped about the details of his meeting with Connors, Sherlund hinted that a settlement would be a relief to investors, and would possibly be “a catalyst that could drive the stock up 10 points.”

In fact, immediately after Sherlund made his comments, the stock jumped 5 5/8 to 96 1/4. It had leveled off to 93 1/4 by late afternoon.

Microsoft Resigns from Trade Group

While Microsoft officials scrambled to keep investors calm and the lines of communication open with the Department of Justice, the company resigned from the Software and Information Industry Association (SIIA), which recently took a position on the case against Microsoft.

Robert Herbold, Microsoft’s chief operating officer, wrote in a letter to SIIA president Ken Wasch, “SIIA is no longer playing an effective leadership role on the issues where the software and information industries share a united interest.”

Herbold did not refer specifically to the antitrust lawsuit, but Microsoft spokesperson Jim Cullinan said late yesterday, “SIIA has clearly been distracted by attacking one of its members and focusing on the antitrust trial. With membership dwindling, attendance at their events drastically going down and companies like Intel leaving the SIIA, clearly they are not providing leadership.”

Cullinan also accused the organization of attacking “one of their own members to benefit a handful of other members, namely our competitors.”

Wasch responded by saying that Microsoft’s “tactics resemble that of a schoolyard bully. Since the SIIA Board of Directors has refused to play by Microsoft’s rules, Microsoft has, in effect, taken its ball and gone home.”

Microsoft said it will take a more active role in other trade groups, including the Information Technology Association of America (ITAA), Computing Technology Industry Association and Business Software Alliance.

Meanwhile, Judge Jackson is reportedly drafting his ruling, which industry analysts and legal experts believe could go against Microsoft.