MCI Takeover Battle: Case analysis questions
1. What are the strengths and weaknesses of Verizon, MCI, and Qwest? Where are the synergies in the proposed combination?
2. Evaluate the two offers in Exhibit 7. What explains the two structures? In each case, what is the value to MCI shareholders?
3. Merger arbitrage (or risk arbitrage) funds speculate on the completion of stock and cash mergers, typically buying the target and hedging the risk of the acquirer’s shares accordingly to exchange ratio in stock mergers. What positions would risk arbitragers take in this deal? How would their positions change if the board appears to favour Quest offer?
4. Consider the Worldcom-MCI merger and the Qwest-US West merger. Trying to avoid hindsight bias, should the board of MCI and US West have accepted these offers? What is the obligation to shareholders? Was that obligation fulfilled? What about WorldCom and Qwest? Did their shareholders benefit?
5. Which offer should MCI accept? Why?
6. What approach should Verizon take to win takeover context?
Qwest? 1.How much confidence do you have in your estimate of synergies? We believe that the estimates of synergy given by the management is fairly reasonable. Based on the following factors
•Both the firms had a complementary line of business. The merger created a securities servicing and asset management behemoth that can rival any bank or asset manager in the world. BNY will be able to piggyback off mellon and the presence they have established in the asset management world.At the same time Mellon can take advantage of BNY’s corporate trust business . The merger would make available BNY’s institutional funds to Mellon financial clients .
•In addition to cross selling , the executives believed that new product offerings could be designed to give combined enterprise new source of growth •Despite their past rivalry , the cultures of the two companies were highly compatible
•The expected reduction in workforce of about 10% and streamlining of operations in New York and Pittsburg will further help in reducing the cost •The managers were conservative in their estimate of synergies as they did not take into account the revenue synergies Some of the possible risk were
•The possibility of client loss which is higher then expected •The integration of two large diversified financial companies could pose a distraction to managers and divert attention from the important task of growing business •There was a possibility of regulatory interference and delays