MCI Takeover Battle: A Finance Case Study on Verizon vs Qwest

This case study examines the competing merger bids for MCI from Verizon and Qwest. It explores the strengths and weaknesses of each company, analyzes potential synergies, and evaluates the structure of the offers. The case questions whether MCI's decision to accept Verizon's offer was truly in the best interest of maximizing shareholder wealth, considering Qwest's higher initial bid. The analysis includes calculations of earnings per share (EPS) to assess the potential value for shareholders after the merger with each company. Ultimately, the case provides a detailed overview of the factors influencing mergers and acquisitions decisions in the telecommunications industry. Desklib provides access to similar case studies and solved assignments for students.

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Mergers and Acquisition
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Mergers and
Acquisition
Mergers and acquisitions involves the transactions of transferring
ownership or combination of ownership of business organization or
operating units. MCI is the target firm and the predators are the Verizon
and Qwest who have placed different bids for the firm on cash and share.

Strengths and weakness of MCI
• Over the past years they had rapid growth.
• They have a strong consumer base on their products and services
operating inside and outside United States.
• They the required infrastructure.
Weaknesses
• Poor management and leadership.
• Unable to face competition.
• They are reluctant advancing from ancient technology to the new
technology.

Strengths and Weakness of Verizon
Strengths
• They have ability to advance in technology with a short time.
• They have ability to grow.
• They also have a better market base for their services.
Weaknesses
• Poor management.
• Stagnant in growth opportunities.

Strengths and Weakness of Qwest
Strengths
• They have better infrastructure
• Strategic management
• Ability to identify growth opportunities
Weakness
• Poor performance
• High Compensation
• Poor earning projections

Synergies in the Combinations
Synergy is an effect that result from combination of two firms which
has a greater value compared to combined value of the two separate
firms.
The type of synergy include
• Shared Information Technology
• Improved sales and marketing
• Production of complementary products
• Research and development

The offer
• The reason that MCI accepted the offer of Verizon is the fact the company is bigger
compared with Qwest.
• Therefore the claim by the management to take offer on the ground to maximize
shareholders wealth is true.
• Since MCI has international expansion it would love to be taken over by a company
that has international expansion.
• Verizon has four main segment; domestic telecom, domestic wireless, information
wireless and international.
• The company has around 210000 employees which indicate it’s a big in size.
• Qwest has three segment wireless, wireline and services.
• It has around 41000 employees.

Structure of the offers
Verizon
Verizon is a large company and its has better capital structure
compared to Qwest. The offer by Verizon is more realistic compared
to that of Qwest. Despite the fact that Qwest offers the initial bid of
$6.3 billion, it is clear it can only get $6 billion from bank financing.
Qwest on the other side has less chance to raise the rest of the amount
through shares since their price is the least among the three shares.
Additionally, merging with MCI would probably bring the share of the
target low which would be against their goal.

Value of the shareholders wealth
EPS= Earning /no. shares
Verizon Case=
MCI shares= 11 million shares
Verizon =2.77 billion shares
Earnings MCI =11* 23.78=$261.58 million
Verizon Earning= $96.56 billion
EPS after merger=$96560+$261.58=$96821.58 million/2781=$34.82
Qwest= 1.82 billion shares
Earning= $6.89 billion
EPS after merger= 6890+261.58=$ 7151.58 million/ 1831 million shares= 3.91

References
Bonaime, A.A., Gulen, H. and Ion, M., 2017. Does Policy Uncertainty Affect Mergers and Acquisitions?.
Brueller, N.N., Carmeli, A. and Drori, I., 2014. How do different types of mergers and acquisitions
facilitate strategic agility?. California Management Review, 56(3), pp.39-57.
Cartwright, S. and Cooper, C.L., 2014. Mergers and acquisitions: The human factor. Butterworth-
Heinemann.
Howson, P., 2017. Due diligence: The critical stage in mergers and acquisitions. Routledge.
Lebedev, S., Peng, M.W., Xie, E. and Stevens, C.E., 2015. Mergers and acquisitions in and out of
emerging economies. Journal of World Business, 50(4), pp.651-662.
Nahavandi, A. and Malekzadeh, A.R., 2008. Acculturation in mergers and acquisitions. Academy of
management review, 13(1), pp.79-90.
Uhlenbruck, K., Hughes-Morgan, M., Hitt, M.A., Ferrier, W.J. and Brymer, R., 2017. Rivals’ reactions to
mergers and acquisitions. Strategic Organization, 15(1), pp.40-66.
Sherman, A.J., 2018. Mergers and Acquisitions from A to Z. AMACOM Div American Mgmt Assn.