Background:
In this case the board of directors of MCI communication is considering competing bids for merger from the Verizon and Qwest. The bidding price that Qwest offered is $8.4 billion, which is almost one billion dollar more than the bidding price that Verizon offered. However, Verizon is one of the largest telecommunication companies in the world that has a healthy balance sheet and has a history of successful mergers and acquisitions. On the other side, Qwest is a small company with a weak balance sheet. The Board of Director of NCI communication shows an interest in the favor of Verizon.
Evaluation of the WorldCom-MCI merger and the Qwest-US West merger:
In 1998 the MCI was acquired by WorldCom. The WorldCom bid $37 billion for MCI is the largest acquisition in the business history of telecom industry. The WorldCom-MCI merger has both positive and negative effect on the Internet of the emerging telecom industry. The proposed merger raises serious anti-trust law violation that single company in the merger may gain dominant power in the market and competitive issues. These issues affect every U.S consumer and business. The WorldCom bid to dominate telecommunications industry depends upon three initiatives that include; access to capital markets, increase in poor market based on expanded control over the Internet backbone, preferential service for high-volume business and well-off subscribers.
WorldCom-MCI merger:
MCI should accept the offer of WorldCom. WorldCom takeover will increase the focus on business customers and high volume individual users. As the WorldCom-MCI merger will be the largest acquisition in business history if accepted; therefore it will create a huge increase in the growth of telecom industry. This merger will provide the revenues of $32 billion and the market capitalization of $60 billion. WorldCom-MCI merger will also provide employment to 63,000 people and will increase the U.S. long-distance telephone market. This merger will also provide them with an opportunity to control 50% more of the Internet backbone that is a system of high-capacity circuits and other necessities that are important to carry the tariff across the global world. Under the conditions that are approved by boards of directors of both the companies, shareholders in MCI Communications will receive $51 in WorldCom common stock for each share of MCI they own and vice versa. The merger of MCI and WorldCom may reduce the resources or assets that are available to modernize the telecommunication network that are publicly shared. In addition to this, an increase in the dominance of market by MCI and WorldCom; which are two non union carriers will affect the practices of the labor in the telecommunication industry and will create a situation that will push down wages. The ability of the WorldCom to wage battle for MCI depends upon the share price that is uniquely inflated and it is an established practice of financing acquisitions by using its strong stock as its chief currency.. Both the MCI and WorldCom faced financial issues that include appreciably increased burden of debt and the likelihood that the MCI under the management of the WorldCom will not generate sufficient profits to satisfy the high prices that are paid.
The financial health of MCI-WorldCom will be uncertain. MCI-WorldCom dominance over the Internet will crowd out the vendors of rival premium services at which MCI-WorldCom target at high volume business and elite residential users will come at the expense of other residential customers. Together all these changes will harm the telecommunication system of the economy at the moment when the health of that infrastructure is important for the well being of the overall economy. Before a combined MCI-WorldCom creates dominance in the market as an effective monopoly; the regulatory authority must addresses these issues. The purpose of the merger that WorldCom proposed to MCI communications is an attempt by the WorldCom to develop the market dominance power over the Internet.
Qwest-US West merger:
The US West should accept the offering of the Qwest. Although, with the announcement of US West merger, the stock price of the Qwest dropped from $44.88 to $ 34.13 per share in 1999 but it would improve with by time. Qwest and US West expect that the combination of both the companies will increase the earning per share of Qwest in the first year of the completion of the transaction. They will also expect that with this merger, they can realize the synergies of approximately $10.5 to $ 11 billion over a five year; which will be after the closure of merger activities.
Obligations to Share Holders of the companies:
Their obligation towards shareholder was that they should accept the bid for merger after taking votes from the shareholders and prove bid that maximize the wealth of the share holders. It is an obligation of the board of the company to accept the highest price for its shareholders. It is the obligation on the company’s board to accept the price for merger that is highest for its shareholder. It is also important for the company to get the best price for the stockholders at the time of selling the company.
It is a responsibility of the company to maximize the long-term value of the company for its shareholders by identifying the concerns of the other interested parties which includes: ...................................
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