The Verizon-MCI Merger

            
 
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Case Details:

Case Code : BSTR259
Case Length : 19 Pages
Period : 2000-07
Pub Date : 2007
Teaching Note :Not Available
Organization : Verizon, MCI
Industry : Telecom
Countries : US

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"Verizon's acquisition of MCI will ensure the continued presence of a national, full-service company with the technology and financial strength, to deliver a broadband future and create economic growth."1

- Tom Tauke, Executive Vice President, Public Affairs, Policy and Communications, Verizon Communications Inc., in 2005.

"It's a great deal for Verizon. The shareholders of MCI didn't get a great deal, but maybe the combined companies will be more powerful and the returns will offset that."2

- Jay Arnold, Portfolio Manager at Abacus Asset Management3, in 2005.

Introduction

On March 30, 2007, Emmet G Sullivan, Judge at the District Court of Columbia, ruled that the US-based Verizon Communications Inc. (Verizon), one of the leading communication providers in the world, could legally merge with MCI Inc4. (MCI). This ruling reaffirmed the decree of the Department of Justice (DoJ) issued in October 2005, that had earlier allowed the merger. DoJ's decree had been challenged in court by Comptel, representing the competitor companies that could be affected by the merger and Alliance for Competition in Telecommunications (ACTel), a group of smaller telecommunication companies. Analysts said that further appeal on the merger was unlikely after the ruling.

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When the Verizon-MCI merger was announced in March 2005, consumer groups and the American Antitrust Institute (AAI) expressed concern that the merger, and the merger of AT&T and SBC would lead to a duopoly in the US telecom market.

According to Jonathan Rubin, Research Fellow at AAI, "The Verizon/MCI and SBC/AT&T mergers would create a 'duopoly of one-stop shops' selling a wide range of telecom services.

Two large, vertically-integrated firms may find the gains from allocating markets and avoiding vigorous direct competition too great to resist.

In such a scenario, the presence of a number-three player, a competitive-fringe or a market maverick, can make all the difference between a dynamic competitive market and a stilted, static one.5 (Refer Exhibit I for more about the telecom industry in the US).

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1] "Verizon/MCI Win Final State Approval", TelecomWeb News Digest, December 27, 2005.

2] "Verizon + MCI; Jilted Qwest Left at the Altar,"http://www.aurorawdc.com, February 14, 2005.

3] Based in Westport, Connicticut, Abacus Asset Management LLC, ran Abacus Small Growth Fund LP. In December 2006, the fund was closed due to lack of demand from the investors. The firm had developed 'Abacus Quantitative Strategy' to be used as a risk-neutral equity strategy.

4] MCI Inc., an American telecommunications company, was the result of merger between WorldCom and MCI Communications.

5] Grant Gross, "Think Tank, Consumer Group Object to Telecom Mergers,"www.infoworld.com, March 24, 2005.

 

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