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Microsoft shares get boost
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March 7, 2000: 6:44 p.m. ET
Goldman's Sherlund, after chat with CFO, says talks on Justice settlement 'heat up'
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NEW YORK (CNNfn) - Shares of Microsoft Corp. rose Tuesday after a Goldman Sachs analyst said settlement talks between the software company and the government's antitrust division "may be heating up."
Following a meeting with Microsoft's new Chief Financial Officer John Connors, Goldman analyst Rick Sherlund said management seems to be very focused on settling the Department of Justice antitrust lawsuit against the company.
"Management will not comment on the status of the DOJ settlement discussions, but it appears to us that things may be heating up," said Sherlund in a research note Tuesday. "There appears to be a flurry of activity on the settlement front, but no way of gauging probabilities."
Adam Sohn, a spokesman for the Redmond, Wash.-based company, said, "There is nothing new to report," and added, "We would love to settle the case and both sides are working hard." A spokeswoman for the Justice Department also declined to comment.
Microsoft (MSFT: Research, Estimates) closed up 2-1/4 to 92-7/8, drifting back from an intra-day high of 97-1/2 amid a sharp decline in the broad market. Sherlund expects a settlement would likely drive the stock up "significantly" or by about 10 points, he said.
Speculation about a looming settlement is nothing new, and last December, similar buzz caused Microsoft shares to jump nearly five percent. But Sherlund is one of the most respected Microsoft analysts and was on the Goldman team that helped take the company public in the 1980s.
According to Sherlund, CFO Connors expressed an interest "to be aggressive in repurchasing stock on any material weakness," but said that since the company's acquisition of Visio in January, it would not be able to repurchase stock for a six to nine month period and said "management may want to reexamine this accounting treatment if there were an adverse decision in the DOJ case."
Late last year, U.S. District Judge Thomas Penfield Jackson found Microsoft held monopoly power in the PC operating systems market, in a strong indication he will rule the company violated antitrust laws. His final decision is expected soon.
Since that time, Microsoft and the Justice Department have been meeting with a Judge Richard Posner, a mediator appointed by Judge Jackson, to try and craft a settlement.
"I just don't think Judge Posner would be spending time on this unless they were making progress," said Sherlund.
Sherlund said Microsoft's are fundamentals are healthy, behind a strong launch of its new Windows 2000 platform, PC demand picking up and the ill effects of Y2K-related weaknesses fading - meaning the Justice lawsuit is now the company's most prominent loose end.
"The big cloud on the horizon has been the Department of Justice lawsuit," said Sherlund in an interview with CNNfn on Tuesday. "I'm becoming more optimistic [that] the longer they engage in discussions a settlement is possible here." [663K WAV] or [663K AIFF]
Sherlund did not make changes in his estimates or rating on shares of Microsoft. For the three months ended in March, Sherlund still expects Microsoft to earn about 41 cents a share, up from 35 cents in the year-ago period. 
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