The potential investor in a Google breakup — if John Rockefeller is any guide

Google’s (GOOG, GOOGL) legal woes could force it to sell some of its prized businesses, but investors worried about that outcome may find some comfort in what happened to John Rockefeller’s Standard Oil last May well over a century.

The empire that controlled nearly all U.S. oil production during the Industrial Revolution had to break up into 34 smaller companies after the Supreme Court in 1911 sided with the Justice Department in an antitrust challenge.

The sale of those companies made Rockefeller the richest man in the world. But it also made other shareholders in those new companies richer, according to legal experts.

The companies became giants like Chevron (CVX) and Exxon Mobil (XOM), which still rule the industry today.

“The total market capitalization for all of these companies has increased by about five to six times, depending on what was thought of Standard Oil’s valuation,” said Boston College Law School antitrust law professor David Olson.

The new management and efficiencies that followed the breakup helped the smaller companies flourish, added Susman Godfrey antitrust attorney Barry Barnett.

In Google’s case, existing shareholders could benefit because a leaner company tends to drive innovation and customer service, Barnett said. Google’s search engine, for example, could begin to produce more relevant results and become more valuable to advertisers.

“The people who own the company are not going to lose,” Barnett said.

Not everyone agrees with this rosy view. An analyst at Evercore ISI recently cut a price target on Alphabet, the parent company of Google, after rereading a US federal judge’s antitrust ruling against the company in August.

US District Judge Amit Mehta, who decided the case, sided with the US Justice Department that Google’s Search business was an illegal monopoly that it abused to keep rivals at bay.

Mehta also agreed with the DOJ’s allegations that Google illegally monopolized the online search text advertising market.

“We believe a ‘worst case’ scenario is a more likely scenario than the market assumes,” the Evercore analyst wrote in the note.

It is not yet known what remedies the judge may approve as a result of his ruling.

These could range from a complete breakup of Google to forcing the company to make its search engine data, its “index,” available to its competitors.

It could also be forced to end the kinds of deals that have gotten Google in trouble with regulators, which secure its default search engine on mobile devices and Internet browsers.

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George Alan Hay, a Cornell University professor of law and economics and former head of the DOJ’s antitrust division, said the DOJ is likely to seek “some form of divestment” if Google is found to have violated the law.

“It would be significant. It wouldn’t be disruptive,” he said. “Google Could Survive.”

One concern for shareholders is that a breakup could hurt Google’s huge profit engine. In 2023, Google Search generated more than $175 billion in revenue.

Along with Google’s YouTube ads and Google Network revenue, both of which it promotes on its general search engine, platform advertising accounted for $237 billion of the company’s total revenue of $307 billion.

In October 2020, when the DOJ and states filed suit, Google’s annual revenue was about half that, totaling $162 billion.

Not all breakups of business empires have led to positive outcomes, at least not in the immediate aftermath.

Consider the breakup of telecommunications network AT&T (T) in the 1980s after seven years of litigation with the DOJ.

The Department of Justice sued AT&T in 1974, demanding a breakup of its telephone and telephone equipment monopolies. He got most of what he wanted in 1984 after a 1982 deal that created a number of regional companies.

But AT&T lost significant long-distance revenue to newcomers MCI and Sprint. From 1984 to 1996, its share of total long-distance revenue fell from 91% to 48%.

But Barnett said he expects a Google breakup to have an impact on shareholders, just as the Standard Oil breakup did.

“So if you’re an Alphabet shareholder, this may be good for you.”

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.

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