REDMOND, Wash. — Microsoft Corp. shares rose as much as 5 percent Monday, boosted by investor belief that a court-ordered breakup of the world's largest software maker could give them stakes in two formidable companies.
The shares rose 21/2 to 721/4 in early trading on the NASDAQ Stock Market. They've fallen 40 percent so far this year.
Analysts said a proposal by the U.S. Department of Justice to split Microsoft into two companies — one selling the Windows operating system and the second in control of software applications such as Office — would allow both to sell to more customers, generating more revenue.
"Our valuation shows that, whether split up or not, the sum of the parts are worth about $125 to $135 a share," Lehman Brothers Inc. analyst Michael Stanek said in a report to clients.
The Justice Department made its recommendation Friday in filings with the U.S. District Court overseeing the antitrust case against Microsoft. Government officials are seeking to create more competition in the market for computer operating systems.
U.S. District Judge Thomas Penfield Jackson hasn't yet ruled on what remedies he will order, and Microsoft has said it will appeal any rulings, leaving the case unresolved for at least several years. That has led many analysts to say the recent decline in Microsoft shares, driven by concerns about a breakup, is unwarranted.
"It would likely be years until such a remedy, if ultimately decided upon, would be implemented," said CIBC World Markets Inc. analyst Melissa Eisenstat, who has a "buy" rating on Microsoft.
Nonetheless, Microsoft shares could lag those of its competitors and the broader market, as the lawsuit winds its way through the appeals process, analysts say.
A CIBC analysis of Microsoft as two companies valued the sum of the parts at $52 to $134 a share, with the higher value reached by comparing Microsoft's stock price to earnings ratio, compared to those of its competitors. The lower values came from comparing the company's market capitalization to its revenue.
"We regard this as a range in which the stock could trade while the lawsuit rages on," Eisenstat wrote in her analysis.