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Financial adviser to examine Microsoft break-up?

Legal experts say the Justice Department's decision to retain a New York investment firm is a clear sign the government would like to break up Microsoft.

The Justice Department's decision to retain a New York investment firm is a clear sign the government would like to break up Microsoft, legal experts say.

As previously reported, the government yesterday tapped Greenhill & Co., a specialist in mergers and acquisitions, to advise on possible remedies in the landmark antitrust trial.

While Justice Department spokesperson Gina Talamona said Greenhill & Co. would assist in "a full range of possible remedies," which include "conduct and structural relief," antitrust experts contend there is only one reason to retain the firm: divestiture proposals.

"The principal reason you would ask them to come in would be to design a structural remedy, in particular how do you restructure a company and minimize its impact on the firm, to capital markets, for shareholders, and for employees," said George Washington University Law School professor Bill Kovacic said.

The government would not retain a firm specializing in mergers, acquisitions and divestiture to "propose conduct-related remedies," Kovacic said.

The timing, which followed the start of settlement talks by two days, is the government's way of sending Microsoft a message about its intentions, Kovacic said. "It's like they're throwing rocks at Microsoft."

Based on findings of fact issued on Nov. 5, U.S. District Judge Thomas Penfield Jackson is eventually expected to rule against Microsoft in the case. The government on Monday will present Jackson with conclusions of law, essentially its interpretation of Microsoft's misconduct based on the judge's findings.

Earlier this week, representatives for Microsoft and the government met with judge Richard Posner to discuss possible settlement. Jackson asked Posner, who heads the U.S. Court of Appeals for the 7th Circuit, to mediate between the parties. This week's first meeting in Chicago ended after two hours, with a future meeting planned but not scheduled.

Sources close to the negotiations said that because of directions given by Posner and an expressed interest by all parties to negotiate in earnest, both sides plan to closely guard details of the settlement talks.

A source close to the government said Greenhill & Co.'s advice would be used in all on-going processes, including settlement talks, but that the timing in no way indicates the government would pursue settlement instead of seeing the case to its conclusion.

In an interesting aside, the home page of Greenhill & Co. prominently displays a logo for Microsoft Internet Explorer.

Though settlement talks started off smoothly, antitrust experts are skeptical the government and Microsoft can reach an agreement. Bob Lande, an antitrust professor at the University of Baltimore School Law, said he doesn't think settlement is possible.

Kovacic agreed that settlement will be difficult to reach, though he gave somewhat better odds: "I put things at 50-50, five chances out of 10, they can settle. I do think Posner can succeed in making the sides appreciate the risks better than they do now. But I don't know if he can identify the middle ground solution that lets the government declare victory in a convincing way."

One problem is division in the government camp over what to do about Microsoft, with some of the 19 states involved in the suit taking a much harder line than the Justice Department. Jackson picked Posner to mediate, in part, because of "divergent views" in the government camp.