- The Washington Times - Friday, June 29, 2001

Wall Street cheered yesterday's appeals court decision barring a breakup of Microsoft Corp. in a rare day of celebration for the bear market.
The Dow Jones Industrial Average, led by Microsoft, jumped 80 points right after the decision was announced at noon, rising to nearly a 200-point gain before settling back to end up 131 at 10,566.
The Nasdaq Composite Index, which houses the technology companies that compete with and sometimes emulate the software giant, surged by 51 points, or 2.4 percent, to 2,125. The upswing in Microsoft, one of the world's most widely held stocks, reached 7 percent at one point and was so powerful that Nasdaq had to halt trading in the stock for two hours.
The market was up strongly even before the Microsoft decision on hopes that an economic recovery is near and that European antitrust regulators will relent and approve the proposed merger between General Electric. Co. and Honeywell International Inc.
"Clearly, what is good for Microsoft is good for the U.S. economy. A breakup of Microsoft could have been very disruptive to the entire technology industry," said Alan Skrainka, chief market strategist with Edward Jones in St. Louis.
The pessimism and uncertainty created by the government's aggressive pursuit of Microsoft and the district court's ruling against the company last year weighed heavily on the market, he said, and contributed to a major rout in technology stocks in the spring of 2000.
"Investors want to see very little involvement by government in the economy. This kind of points us in the right direction," he said. "Government under the Clinton administration was taking a very active role."
Mr. Skrainka was more skeptical that GE's latest offer to sell 20 percent of its aircraft leasing business will enable it to pull off its merger with Honeywell. "It's unlikely that will be enough to sway the European Union. No one I've spoken to believes that the deal is suddenly back on the table."
After the markets closed yesterday, the EU rejected the GE offer. The Bush administration is contending that European regulators are holding up the merger more to protect the companies' European competitors than to protect consumers. Critics have said the same thing about the U.S. government's case against Microsoft.
Tom Hazlett, economist with the American Enterprise Institute, said the market's ecstatic reaction to the Microsoft ruling is consistent with the market's long-standing hostility toward the government's case and suggests the Justice Department is wrong in pursuing it.
"When the government loses, the market wins. That ought to tell you something about the quality of the case," he said. Mr. Hazlett published a paper in the Journal of Financial Economics last year chronicling the market's distaste for the Microsoft case.
"The important thing is to look at the rest of the companies that would have benefited from a good antitrust case, the Intels, Ciscos and Applied Materials of the world," he said. The stocks of all those companies, rather than falling on yesterday's decision, rose strongly with Microsoft shares.
The gains were broadly shared. As Microsoft jumped $1.60, or 2.3 percent, to $72.74, Applied Materials rose $1.10 to $49.57. Intel Corp. stock rose 99 cents to $29.64. Cisco was up 65 cents to $18.58. Oracle rose $1.14 to $19.18. Honeywell gained $1.20 to $38.20, and GE climbed 61 cents to $48.87.
One of Microsoft's chief competitors in the Internet business was adversely affected, however. AOL Time Warner shares fell 60 cents to $52.08.
"This is bad news for AOL Time Warner," said John Corcoran, an analyst at CIBC World Markets. "AOL Time Warner would like to compete against a fragmented Microsoft."
Mr. Hazlett said he expects the Bush administration to seek a settlement with Microsoft rather than pursue the case under the appeals court order, which sends it back to the district court to fashion another remedy other than breakup.
President Bush was cool to the Microsoft suit during last year's campaign. But yesterday the White House said only that the Justice Department would study its options.
Mr. Hazlett said the White House may be hesitating because some of the 20 or so state attorneys general who also sued Microsoft may not want to give up on the case. They might accuse the administration of caving to one of Mr. Bush's biggest campaign contributors, he said.

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