BREAK UP: US Department of Justice (DoJ) has brought an antitrust lawsuit against Alphabet’s (GOOGL) adtech business. This follows a similar antitrust suit against its search business. We won’t speak to the merits but will make three points. 1) We are in uncharted territory on antitrust law dating from over a century ago in regulating ‘free’ products. 2) History shows these issues can take decades to resolve. 3) ‘Worst-case’ restrictions and breakups are often a shareholder bonanza, from Standard Oil in 1911 to Microsoft in 2002, as release value and end uncertainty.
LEGACY: The most famous case was the Standard Oil breakup in 1911. At the time it controlled 90% of the US oil industry. It was split into 34 companies and the sum of its parts valuation soared. The split took a long time, coming twenty years after the first government legal action. The company lives on today through Exxon (XOM), Chevron (CVX), BP (BP), and Marathon (MPC). Also in 1911, American Tobacco was broken up. Known as the ‘Tobacco Trust’ given its market dominance, it was split into four after a five-year legal fight. It continues today as part of British American Tobacco (BATS.L). The cases came after passage of the Sherman Act (1890) and amended by Clayton Act (1914). They remain the foundations of US antitrust law today.
RECENT: AT&T and the Bell system broke up in 1984, spinning off its seven regional operating units. This came after a decade-long legal battle. ‘Ma Bell’ lives on in the current AT&T (T) and Verizon (VZ). More recently, and less dramatically, Microsoft (MSFT) reached a deal with the government in 2001 against bundling its internet browser with its PC operating system. This came after winning an appeal against a judgment to split in two. This was a decade-long inquiry and legal battle with the DoJ, and with Microsoft’s stock best days still ahead of it (see chart).
All data, figures & charts are valid as of 25/01/2023