The Mci Takeover Batle: Verizon Vs Qwest Harvard Case Solution & Analysis

THE MCI TAKEOVER BATTLE: VERIZON VS QWEST

QUESTION 1

Trying to avoid hindsight bias, should the board of MCI and US West have accepted these offers?

            Qwest had completed a merger with US West in the year 2000, however, soon after the merger had taken place, the stock price of the merged company had fallen by over 24% on the day of the announcement of the merger in June 1999. Therefore, this was not in the best interests of the shareholders of the company.

            On the other hand, MCI had acquired WorldCom through a merger however, after few years, the merger had failed for both the companies. This was because WorldCom had filed for Chapter 11 bankruptcy in the year 2002 as a result of the investigation conducted by SEC and a series of fraudulent activities and creative accounting practices. Therefore, the board of US West and MCI should not have accepted these offers.

            They should have ensured that the organization follows all the best principles of corporate governance. It should also have maintained its fiduciary responsibility towards the shareholders of their companies so that nothing unfair happens which is detrimental to their future survival.

QUESTION 2

What is the obligation to shareholders? Was that obligation fulfilled?

            Every corporation in the world has one core obligation to its shareholders and that is to take decisions that are in the best interests of the shareholders of the company. The board of MCI had received two offers for the merger bid and now the decision had to be made by the management of the company to opt or accept the bid which generates the highest wealth for the shareholders of the company.

            The shareholders of any company also have the right to bring a lawsuit against the management of the company that announce a deal which is unfair and not at all in the best interests of the company’s future and the wellbeing of the shareholders. Shareholders are the people who want to make the entire deal process transparent so that nothing unfair takes place.

            Most of the mergers that take place in the world fail to create the value that they are projected to yield for the future merged corporation. Around two-thirds of the total mergers that are formed generate below average returns for the company and fail to capitalize all the synergies that had been estimated by them pre-merger. This research had been conducted by the Harvard Management Update.

            Currently MCI is seeking to accept one of the two bid offers for the merger and there are therefore, many mergers inherent in the whole deal process. A single wrong decision on the part of the management and the board of the company, the wealth of the shareholders could be destroyed. Some of the risks involved are:

  • Too low price offers or unfair share price.
  • In order to block all the other bidders, barriers are erected by the management.
  • Interested party and insider deals so that the management of the company could cash out.
  • The breach of the fiduciary duty to the shareholders of the company which happens due to the unfair deal making process.
  • At times all the complete disclosures and full offer is not made available and lack of information results in poor decision making.

All such risks should be avoided and it is the responsibility of the management of the company to act in the best interests of the shareholders. It is the obligation of the management of the company to take those decision that yield higher returns after the deal takes place and which maximizes the wealth of the shareholders in the future.

THE MCI TAKEOVER BATTLE VERIZON VS QWEST CASE SOLUTION

            The shareholders of MCI had favored the deal with Qwest. This was because they did not wanted to opt for the lower bid of Verizon. However, the management of the company wanted to accept the bid of Verizon. This was because this company had a good track record of generating profitable transactions for the merged business and in fact had the potential to capitalize over the synergies of the merger. ...........................

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