Google’s (GOOG, GOOGL) legal troubles may force the company to sell some of its prized assets, but investors worried about that outcome may find some solace in what happened to John D. Rockefeller’s Standard Oil more than a century ago.
The empire that controlled nearly all of America’s oil production during the American Industrial Revolution was forced to split into 34 smaller companies after a Supreme Court ruling in 1961. 1911 Siding with the Justice Department in an antitrust case.
The sale of these companies made Rockefeller the richest man in the world. But it also made other shareholders in the new companies richer, according to legal experts.
Companies became giants like Chevron (CVX) and ExxonMobil (XOM) that still rule the industry today.
“The total market value of all these companies increased by about five to six times based on what Standard Oil was thought to be valued at,” said David Olson, an antitrust law professor at Boston University School of Law.
He added that the new management and talent that followed the separation helped small businesses flourish. Susman Godfrey Antitrust attorney Barry Barnett.
In Google’s case, existing shareholders may benefit, as a company with limited size tends to foster innovation and customer service, Barnett said. For example, Google’s search engine may start producing more relevant results and become more valuable to advertisers.
“The people who own the company are not going to lose out,” Barnett said.
But not everyone agrees with this rosy outlook. An analyst at Evercore ISI recently lowered his price target on Alphabet, Google’s parent company, after rereading a landmark antitrust ruling a U.S. federal judge handed down against the company in August.
U.S. District Judge Amit Mehta, who ruled in the case, sided with the Justice Department’s allegations that Google’s search business constitutes an illegal monopoly that the company exploits to keep rivals in check.
Mehta also agreed with the Justice Department’s accusations that Google illegally monopolized the online search text advertising market.
“We believe the worst-case scenario is more likely than the market is assuming,” the Evercore analyst wrote in the note.
It is not yet known what measures the judge may approve as a result of his ruling.
These options could range from completely breaking up Google to forcing the company to make its search engine data, or “index,” available to competitors.
The company may also have to end the kinds of agreements that have caused Google problems with regulators, which secure its search engine as the default on mobile devices and web browsers.
George Alan Hay, a professor of law and economics at Cornell University and former head of the Justice Department’s antitrust division, said the Justice Department would likely seek “some form of divestment” if Google was found to have violated the law.
“This will be important and not so backbreaking,” he said. “Google may survive.”
One concern for shareholders is that a breakup could hit Google’s massive profit engine. In 2023, Google Search generated more than $175 billion in revenue.
In addition to Google’s YouTube ads and revenue from the Google Network, which the company promotes on its public search engine, advertising revenue on the platforms amounted to $237 billion of the company’s total revenue of $307 billion.
In October 2020, when the DOJ and the states filed the lawsuit, Google’s annual revenue was about half that amount, a total of $162 billion.
Not all breakups of commercial empires have had positive outcomes, at least in their immediate aftermath.
Consider the breakup of AT&T’s telecommunications network in the 1980s, which followed seven years of litigation with the Justice Department.
The Justice Department sued AT&T in 1974, seeking to break up its monopolies on telephone services and telephone equipment. It got most of what it wanted in 1984 after the New York Supreme Court ruled to eliminate the service. 1982 settlement Which led to the establishment of a number of regional companies.
But AT&T lost a significant portion of its long-distance revenue to two new companies, MCI and Sprint. From 1984 to 1996, its share of total long-distance revenue was 1.2%. decreased from 91% to 48%.
But Barnett said he expects the breakup of Google to affect its shareholders in the same way that the breakup of Standard Oil did.
“So if you’re an Alphabet shareholder, this could be useful to you.”
Alexis Keenan is a legal reporter at Yahoo Finance. Follow Alexis on X @alexisquid.
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