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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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

Verizon announced its intention to acquire MCI in February 2005. The deal was finalized only in October 2005, as another telecom company, Qwest Communications International Inc.6 (Qwest) was also vying for MCI and offered higher bids. Subsequently, Verizon increased its offer price for MCI, which was still lower than Qwest's offer.

However, the management of MCI chose to merge with Verizon due to long term benefits that would occur to MCI's shareholders. The merged entity was named Verizon Business, which functioned as a division of Verizon, and integration was completed in January 2006.

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In the financial year 2006, Verizon Business recorded revenues of US$ 20.5 billion and its operations reached more than 2,700 cities in 150 countries.

Verizon Business offered large business customers advanced IP services, managed network services and virtual private networks. The customers of Verizon Business included 94% of Fortune 500 companies.

According to Benjamin Powell, Director, Center on Entrepreneurial Innovation, The Independent Institute, and Assistant Professor, Economics, San Jose University, "The Verizon and MCI merger is driven by competitive pressure. Sprint, Motorola, and Intel are working together to provide high-speed wireless communications and other firms are innovating as well. Verizon is a regional telephone service provider and a major competitor in wireless telecommunications. MCI is a long-distance carrier and a major provider of Internet backbone. Nobody can predict what innovations a merged Verizon-MCI will create, but the increasing integration of communications has made the potential synergies between these companies obvious."...7

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6] Qwest provides local telephone services in 14 states across the US, operating through three segments, Wireline, Wireless and others. The company's revenue in 2006 was at US$ 13.92 billion and net income at US$ 593 million.

7] Benjamin Powell, "Telecom Mergers are Part of the Competitive Process,", September 13, 2005.


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