The Potential Investor Gain from Google’s Breakup—If John Rockefeller Is Any Indicator (Video)

Google’s (GOOG, GOOGL) legal troubles could force the company to sell some of its prized businesses, but investors worried about that turn of events can take some solace in what happened to John Rockefeller’s Standard Oil more than a century ago.

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

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.

These companies became giants like Chevron (CVX) and Exxon Mobil (XOM) that still rule the industry today.

“The combined market capitalization of all these companies increased by about five or six times what Standard Oil was valued at,” said David Olson, a professor of antitrust at Boston College Law School.

New management and efficiency gains that came after the breakup helped smaller companies thrive, said Barry Barnett, an antitrust lawyer with Susman Godfrey.

In Google’s case, existing shareholders could benefit because the reduced company tends to be more innovative and customer-service-oriented, Barnett said. For example, Google’s search engine could start generating 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 that optimistic view. One Evercore ISI analyst recently lowered his price target for Google parent Alphabet after rereading a landmark ruling by a U.S. federal antitrust judge against the company in August.

U.S. District Court Judge Amit Mehta, who ruled on the case, backed the U.S. Justice Department’s contention that Google’s search engine is an illegal monopoly that the company uses to keep rivals at bay.

Mehta also agreed with the Justice Department’s accusations that Google illegally monopolized the market for text-based search ads.

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

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

These could range from completely splitting up Google to forcing the company to share its search engine data, or “index,” with competitors.

The company could also be forced to end agreements that have gotten Google in trouble with regulators and that keep its search engine 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 require “some form of sale” of assets if it found Google had violated the law.

“It would be significant. It wouldn’t be spine-breaking,” he said. “Google could survive.”

One concern among shareholders is that a breakup could affect Google’s massive profit engine. In 2023, Google’s search engine generated more than $175 billion in revenue.

Including ad revenue from YouTube and the Google network the company promotes across its general search engine, ads on those platforms brought in a staggering $237 billion of the company’s $307 billion in total revenue.

In October 2020, when the Justice Department and state authorities filed the lawsuit, Google’s annual revenue was about half that amount, totaling $162 billion.

Not all the collapses of business empires have had positive consequences, at least in their immediate aftermath.

Consider the breakup of the AT&T (T) 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 service and telephone equipment. It got most of what it wanted in 1984 after a 1982 settlement that led to the creation of a series of regional companies.

But AT&T lost a significant portion of its long-distance revenue to new companies like MCI and Sprint. From 1984 to 1996, its share of total long-distance revenue fell from 91 percent to 48 percent.

Barnett said, however, that he expects the Google breakup to impact its shareholders in a similar way to the breakup of Standard Oil.

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

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

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