Skip to main content


  • Author:
  • Publish date:'s WEEKEND BULLETIN

November 6, 1999

Market Data as of Close, 11/5/99:

o Dow Jones Industrial Average: 10,704.48 up 64.84, 0.61%; down 0.2% for the week

o Nasdaq Composite Index: 3,102.29 up 46.34, 1.52%; up 4.6% for the week

o S&P 500: 1,370.23 up 7.59, 0.56%; up 0.5% for the week

o TSC Internet: 814.87 up 18.06, 2.27%; up 8.5% for the week

o Russell 2000: 442.41 up 2.51, 0.57%; up 3.2% for the week

o 30-Year Treasury: 101 00/32 up 23/32, yield 6.040%

Companies in Today's Bulletin:

Microsoft (MSFT:Nasdaq)

Pfizer (PFE:NYSE)

Warner-Lambert (WLA:NYSE)

American Home Products (AHP:NYSE)

In Today's Bulletin:

o The Microsoft Decision: Fallout Might Be a Less Cocky Microsoft, and Less Fearful Competitors
o The Coming Week: Not the Fed's Week, So Relax, Kick Back and Read the Microsoft Report
o Evening Update: Microsoft Walloped in Landmark Antitrust Case and Stock Falls Over 4 1/2 in Evening Trading

Also on

The wide-ranging, yearlong antitrust lawsuit against Microsoft (MSFT:Nasdaq) reached one of what will surely be many dramatic moments, with U.S. District Judge Thomas Penfield Jackson's issuance of his opinion, released Friday evening.

Jackson's finding of fact represents the first step toward a final judgment in the case, which could come by year-end, according to legal experts. takes a look at the many ramifications of the judge's ruling in a special series of stories.

Internet: The Microsoft Decision:



The latest news and commentary on the historic legal question.

Market Features: The Microsoft Decision: Wall Street Foresees Little Stock-Market Effect From Microsoft Case

Even a worst-case ruling shouldn't mean an end to the bull market, observers say.

Tech Savvy: The Microsoft Decision: It Can Live With Business Limitations

The judge's findings were harsher than many expected. But Microsoft -- like IBM before it -- will be able to work around any bans placed upon it.

Biotech/Pharmaceuticals: Pfizer's Close-to-the-Vest Stance Has Arbs Wondering What It's After

The drug giant hasn't begun an exchange offer for Warner-Lambert shares, which leaves some Wall Street pros wondering.

Wrong! Dispatches from the Front: Trying to Get In

Cramer's hoping for a selloff -- not because he's short the market, but because he wants to repurchase some of the stuff he gave up.

Software: The Microsoft Decision: Fallout Might Be a Less Cocky Microsoft, and Less Fearful Competitors


Spencer E. Ante

Staff Reporter

11/5/99 10:40 PM ET

SAN FRANCISCO -- While far from over, the historic antitrust case of

U.S. vs. Microsoft

is tilting in favor of the

U.S. Justice Department

. A judge's findings late Friday clearly strengthen the government's hand as it weakens


(MSFT) - Get Free Report


"Now it's damage-control time for Microsoft," says Dana Hayter, an attorney with

Fenwick & West

and a former Department of Justice employee. "The judge is telegraphing his punch on the remedy side. Given that tone, he's considering a more extensive remedy."

Some of the rippling effects of the antitrust trial could include more lawsuits against Microsoft and an increase in investments into areas now dominated by the Redmond, Wash., software company. More broadly, the findings add new grist to the debate about the rules of innovation, competition and monopoly in the age of the Internet.

Microsoft Decision: Join the discussion on


Message Boards.

U.S. District Judge Thomas Penfield Jackson

issued his findings of fact late Friday, which said decisively that Microsoft holds a monopoly in operating systems for personal computers. Jackson isn't expected to rule for several months on whether Microsoft violated antitrust laws, but his strongly worded findings represent a major setback to Microsoft in its defense and suggest that he will favor the government's case in his final decision.

Microsoft said in a statement it will continue to "vigorously contest" the issues in court. Assistant Attorney General Joel Klein cautioned that it's too early to talk about any remedies against Microsoft, but he said he was "enormously pleased" by the finding.

Jackson wrote that "Microsoft enjoys monopoly power" in operating systems for


(INTC) - Get Free Report

-based PCs and that its customers "lack a commercially viable alternative to Windows." The decision also said by tying its Windows 98 operating system to its Internet Explorer Web browser, Microsoft purposely squashed innovation.

"Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products," wrote Jackson in a 207-page document. "The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest."

Both Microsoft and the Justice Department have 30 days to respond, after which Jackson will issue a ruling on whether Microsoft's monopoly violated antitrust laws. A monopoly doesn't violate antitrust laws unless a company uses its monopoly to prevent competition or to extend its control into new industries.

An appeal from Microsoft, the Justice Department or both would tie up the case for months, if not years. But antitrust experts interviewed predict that the findings will trigger another round of settlement talks between Microsoft and the government. "It certainly gives the government more leverage," says Hayter. "It increases the likelihood that there will be a meaningful settlement."

Rick Horning, a partner with law firm

Tomlinson Zisko Morosoli & Maser

, agrees with Hayter, but says "it also stiffens the backbone of the government."

Even if Microsoft settles, its legal headaches could be far from over. "A findings of fact that Microsoft has monopoly power creates a shortcut for follow-on litigants," says Hayter. "It makes it easier for people to sue them."

Indeed, what's bad for Microsoft is good for many others.

The findings could encourage increased investment in Internet ventures as companies feel less afraid that Microsoft will steamroll them into oblivion. "The less control that Microsoft has on the Net the more funding comes into e-business ventures," says Hayter. "Three years ago Microsoft was coming to the Valley and saying, 'Don't fund companies that are competing against us.' Now they can't do that."

Other observers say the bigger issue is that the trial has highlighted the difficulties of applying current antitrust law to monopolistic behavior in the fast-moving technology industry. "In every major cycle of the computer industry, customers have appointed a vendor to be in charge," says Roger McNamee, whose

Integral Capital Partners

is long Microsoft. "And that vendor has wound up the monopolist. In the old days it was


(IBM) - Get Free Report

-- today it's Microsoft."

"Can antitrust law really keep up?" asks Andrew Shapiro, a lecturer at

Columbia University Law School

. "By the time this is all resolved, the browser is embedded in the operating system." Instead of using the law to influence business, Shapiro says, the public might be better served by putting more pressure on the private-sector consumer choice.

Among other possible remedies: Change government procurement policies so that a certain percentage of computer systems use open source technology, or force Internet media corporations -- through consumer pressure -- to preserve a public space on their Web pages for content or services that isn't supported by Microsoft.

While the

U.S. vs. Microsoft

case has been one of the biggest business stories of the past year, its immediate impact on stocks is likely to be

muted. And Wall Street, which has had a year to ponder the impact of an unfavorable ruling, increasingly sees Microsoft as

less central to the tech industry during the rise of the Internet. Despite a number of endeavors in e-commerce and Internet content, Microsoft remains just one of a number of important players in the Internet industry.

Even though the outcome of the trial is still unclear, Shapiro says the government investigation, trial and harsh public scrutiny of Microsoft has forced Microsoft to be more friendly. In recent months, Microsoft has backed away from pressuring ISPs and Web sites into promoting its browser and Internet software to the exclusion of competitors.

"This was always a trial of public opinion," says Shapiro. "Already the Justice Department has won in the sense that they've put Microsoft on the defensive."

The Coming Week: Not the Fed's Week, So Relax, Kick Back and Read the Microsoft Report


David A. Gaffen

Staff Reporter

11/5/99 8:21 PM ET

It's going to be one more week.

One more week before the market finds out if it's handicapping the


incorrectly and a rate hike shocks the markets into a free fall. One more week before everyone finds out if the market is Jake with a rate hike -- looking for that interest-rate increase as a jumping-off point for more euphoria.

Which means the market may take a breather next week.

The working theory among the investing community is to "Buy the last rate hike," figuring the Fed is done tinkering with monetary policy, interest rates are going to stabilize and growth will continue unfettered.

With the

Nasdaq Composite

at an all-time closing high and the


up 5.7% in the last two weeks, put a check mark next to that item on the list.

"There's a good chance that next week is going to be more compacted and flat heading into the Fed meeting," said Brian Belski, chief investment strategist at

George K. Baum

. "Stocks are near-term overbought, bonds are near-term overbought. Prices need to settle down here a bit."

Well, if the market wants something to slog through, there's lots of gristle in the harsh 200-page love letter delivered today by a Federal judge on


(MSFT) - Get Free Report

after a yearlong antitrust trial. The report says that the company has a monopoly in the manufacture of personal-computer operating systems -- not a surprising ruling. The judge also found that Microsoft was trying to monopolize the market for Internet browsers.

That's a lot of


"Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products," the report said.

Actions taken against Microsoft, or for that manner, any matter of bad news has traditionally just been an opportunity to buy the stock. In after-hours trading, Microsoft, which closed at 91 9/16 today, rose as high as 93 but was lately trading at 90 1/2 on



But is all the good news already factored into the stock, which has doubled since the

Department of Justice

filed suit against the software company last year?

"If you had to give me a guess, there's more downside in this stock than upside, because the stock is up a ton since the beginning of the trial," said Jim Bianco, president of

Bianco Research

in Barrington, Ill. Today's release is simply a fact-finding release and not a final ruling on the trial.

If next week proves to be a time of consolidation, it could be a hard week for Microsoft. On a long-term basis, however, some analysts

believe, whatever the outcome, that it will have little effect on the market's fortunes. For example,


(T) - Get Free Report

shareholders profited handsomely after the breakup of the company into the seven Baby Bells.

What Condition Is My Condition in?

The most interesting aspect of next week might be tracking the market's perception of what the Fed is going to do. Two weeks ago, this was an easy call. Bonds rallied partly due to the perception that the world would be a pretty friendly place following a Nov. 16 rate hike -- a bit of Y2K-related safety buying would mix nicely with buying related to the normal seasonal strength in the bond market. Equities owed something to the bond market's rally, even if, predictably, those in the equity market were less convinced of a rate hike.

But it's gotten more complicated than that. The November fed funds futures contract, listed on the

Chicago Board of Trade

was lately pricing in only a 34.2% probability of a Fed rate hike, compared with 72% on Oct. 28. So either the market's revised viewpoint is correct, or it's awfully mistaken in thinking the Fed is not going to do anything. Maybe the market just doesn't care.


SG Cowen's

chief investment strategist Charles Pradilla among those who represents the market's version of triangulation: Rate hike or not, it just doesn't matter.

The market will probably pull back and digest some of these gains next week, but he's not worried that the stock market is making the same mistake it made before the June and August Fed rate increases. In those instances, stocks rallied when it appeared the Fed was done raising rates and investors were twice bitten.

What's different about this time, and the last two instances where the stock market mistakenly believed the Fed was finished raising interest rates, is that the bond market is a believer, too. Bonds have been chafing under a yearlong bear market and the continually antsy Fed. But the Treasury market turned it around, shaving 40 basis points off the 30-year bond yield, due to some friendly economic data and a confident sounding speech from Fed Chairman

Alan Greenspan


"I think two weeks after it happens, the markets won't even remember," said Pradilla. "If

the Fed were going to give some indication that they were really worried, they would have. They may tighten and go into a neutral mode, but it's becoming clear that they are near the end of what they have to do."

Evening Update: Microsoft Walloped in Landmark Antitrust Case and Stock Falls Over 4 1/2 in Evening Trading


Eileen Kinsella

Staff Reporter

11/5/99 8:19 PM ET

A U.S. Federal judge ruled that


(MSFT) - Get Free Report

wields monopoly power in PC operating systems, dealing a blow to the mammoth software company, in one of the biggest antitrust cases of the century.

In a decision deemed highly favorable to the government, Judge Thomas Penfield Jackson said three main facts indicate Microsoft enjoys monopoly power: the company's large and stable market share, the high barriers to market entry and the lack of a commercially viable alternative to the Windows operating system.

In other portions of the ruling, Jackson said Microsoft used its powers to punish competitors and that its actions harmed consumers. The ruling set the stage for a later ruling on whether Microsoft's actions constitute a violation of antitrust law. In after-hours trading, shares were down 4 9/16 to 87 1/16 on

Island ECN


Stick with

this evening and over the weekend, as we provide up-to-the-minute stories, commentary and reaction on the Microsoft case.

After-Hours Trading



checked its wallet and, oops, it announced that it may not have enough cash to fund operations for the upcoming year. As a result, the company broke out the feather dusters and got its clock cleaned. The news comes right after rival



solid IPO, which only dragged Peapod down during the day session. This after-hours drop is just insult to injury.

And if you're looking for


, you won't find it here. The ECN takes Fridays off to pursue other interests, like its burgeoning handball career and heading up the local quilting bee.

In other post-close news (earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews



reported a third-quarter loss of 26 cents a share excluding charges, smaller than the single-analyst expected loss of 78 cents, but wider than a year-ago loss of 21 cents a share.

Tower Air

(TOWR) - Get Free Report

reported a third-quarter loss of 7 cents a share, greatly missing the lone-analyst expected earnings of 65 cents a share and the year-ago earnings of 79 cents a share.

Mergers, acquisitions and joint ventures


U.S. Justice Department

said it allowed


(AA) - Get Free Report

$41 million acquisition of

Golden Aluminum

, a unit of

ACX Technologies


, saying that the sale of Golden's facility in Fort Lupton, Col., resolved antitrust concerns.

Alaska governor Tony Knowles reached a tentative agreement with

BP Amoco


that would clear a hurdle in its $27 billion bid to take over

Atlantic Richfield

(ARC) - Get Free Report


BP Amoco has agreed to sell 620,000 acres of its exploitation leases as well as matching stakes in the trans-Alaska pipeline system, but said the sales would have minimal impact on the $1 billion in synergies it expects to realize from the merger. Alaskans will decide on the BP Amoco deal at town meetings over the next two weeks



Mexican industrial conglomerate


(DES) - Get Free Report

said it sold

Grupo Campi

, its poultry and animal feed business, to Mexican poultry producer


(IBA) - Get Free Report

for $155 million. Bachoco will assume $27 million in Campi debt.


(PFE) - Get Free Report

is sticking to its bidding guns in its offer for



. Pfizer said it was "very committed" to pursuing a deal with Warner, but that it was too early to discuss possible hostile measures. Pfizer said it sees a "wonderful, complementary fit," with Warner Lambert, according to Reuters.

Offerings and stock actions

Bel Fuse

(BELFA) - Get Free Report

said its board declared a 2-for-1 stock split, payable Dec.1 to shareholders of record on Nov. 22. The company will pay a special dividend of one share of class B common stock for each share of Class-A and Class-B common stock outstanding.

The projected price range for

United Parcel Service's

initial public offering of 109.4 million class B common shares was raised to $47 to $49 a share, from $36 to $42. UPS said it could reap $5.058 billion in proceeds based on the middle of the range.

Street Sightings

John J. Edwards III will chat on AOL's MarketTalk Monday, Nov. 8 at 3:30 p.m. EST. MarketTalk is hosted by Sage Online. (Keyword: PF Live)

Copyright 1999,