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If the Microsoft Corp. antitrust case is all about spreading the wealth, you wouldn’t know it by what the federal government paid its Wall Street adviser, Greenhill & Co. The Department of Justice paid the investment bank $117,383.05 for devising a plan to split the Bellevue, Wash.-based software giant into an applications company and an operation systems firm, according to documents obtained under the Freedom of Information Act. Quite a bargain, considering the $4.27 million in fees Greenhill & Co. split with two other investment banks in April for working on International Paper Co.’s $849 million acquisition of Shorewood Packaging Corp., according to data provided by CommScan\Computasoft Research Ltd., a New York research firm. IP’s post-merger market capitalization is about $20 billion; Microsoft’s is about $515 billion. The $117,383.05 payment includes a flat $12,000-a-month fee for advisory work for the length of the contract, which ran from Dec. 2, 1999, to June 30. That arrangement resulted in $84,000 in monthly fees. The government also reimbursed Greenhill & Co. $25,300.37 for travel and $8,082 for other expenses, which includes telecommunications, information services, printing, duplicating and postage. Greenhill & Co. chairman Robert F. Greenhill did not return calls for comment. Department of Justice officials were unavailable for comment. Antitrust experts said the government got a great deal. “This sounds like a bargain price,” said Robert Lande, a professor at the University of Baltimore law school who has attended many of the hearings in the Microsoft litigation. Lande said the only litigation fees that tend to exceed the cost for lawyers are investment advisory fees. To retain one of the top M&A advisory firms during a boom economy for such a small, flat-rate amount is highly unusual, he said. Others agreed. “This undoubtedly reflects a substantial discount from their usual rates,” said William Kovacic, a professor at George Washington University’s law school. The $84,000 fee would translate into an average rate for junior and senior bankers of $300 per hour for 277 hours of work, which isn’t much considering the length of the case’s proceedings. And that makes some observers wonder. “This had to be a bigger project for them,” said Kovacic, who noted that a single meeting can eat dozens of hours of time. Indeed, Greenhill & Co.’s mandate was to help the feds determine what type of structural remedy would work best and how that solution would be implemented. No small task, considering a separate operating system company worth $185 billion or so was the centerpiece of the discussion. In addition, M&A advisory fees tend to reach into the millions of dollars. The average fee paid to the acquirer’s investment adviser for deals of more than $5 billion is $22.8 million, according to CommScan. For instance, Credit Suisse First Boston is getting $23 million for advising on Firstar Corp.’s acquisition of U.S. Bancorp while CIBC World Markets and Banc of America Securities LLC are sharing $35 million in fees for advising on JDS Uniphase Corp.’s acquisition of SDL Inc. Kovacic said Greenhill & Co. was likely viewing the Microsoft case as an opportunity to get publicity rather than rake in fees. “This was a promotional, business development initiative on Greenhill’s part,” he said. “That would have been the compensation.” Greenhill & Co. also presented more of an historical overview of how corporations have split apart rather than a detailed plan of how the Microsoft breakup should occur, Kovacic said. That historical approach should have taken fewer work hours to produce, he said. “The actual discount would have been even more extraordinary if it had attempted to do a detailed blueprint of how to restructure Microsoft,” he said. “That would have been astronomical.” In fact, the opportunity for investment bank advisory work involving a Microsoft split is far from over. All Greenhill & Co. did for the government was devise a preliminary plan as part of the litigation. It would be up to Microsoft to decide whether to hire Greenhill & Co. to actually implement the split. Whether Greenhill or any other investment bank will ever see those additional fees remains questionable. Microsoft has asked a federal appeals court to overturn the ruling. The court will hold arguments Feb. 26 and 27 and could rule by spring. Also, it is unclear whether the administration of President-elect George W. Bush will insist on a breakup. John Ashcroft, Bush’s attorney general nominee, has yet to weigh in on the Microsoft case. The Justice Department reportedly had trouble finding an investment bank willing to accept the job, since taking it risked permanently alienating Microsoft Corp. Robert Greenhill’s firm, however, appeared to be a perfect fit. Greenhill brought enormous prestige to the task. He was selected by Travelers Corp. chief Sanford Weill in the early 1990s to build Smith Barney into a leading investment banking firm. Having completed that, he left in 1996 to form his own boutique. His firm has worked a wide-variety of deals, including several involving Compaq Computer Corp. More recently, the firm advised General Mills Inc. in its acquisition of Pillsbury Co. and Dresdner Bank AG in its purchase of Wasserstein Perella & Co. (Wasserstein Perella & Co. is the general partner in a fund that owns The Daily Deal and law.com). Greenhill & Co. called for a quick split of Microsoft, according to an 11-page summary filed with the court in May. The operating system company would own the Windows, NT and CE systems. Everything else would go to the applications company. The investment bank said the realignment would take three months and start with an internal reorganization. Simultaneously, Microsoft would start a six-month process involving the initial public offering of 20 percent of the stock in either of the two units, which would be called NewCo. Once the IPO is complete, Microsoft would either sell the remaining 80 percent stake in NewCo or give it to shareholders in a tax-free distribution. �Copyright 2000, The Deal, LLC. All Rights Reserved.

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