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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Background Note

From the advent of telephones in the US until the 1980s, under the Bell System, AT&T had monopoly over the US telecom market.

The US DoJ filed an antitrust suit against AT&T in 1974, charging that the company had unlawfully monopolized the telecommunications market. This led to the 1984 break up of AT&T in order to do away with the prevailing monopolistic conditions in the American telephone industry...

MCI Inc. was founded as Microwave Communications Inc. in 1963, with a plan to build a series of microwave relay stations. In 1968, an FCC ruling gave telephone users the right to connect to private communications equipment through AT&T Network. In the same year, an investor from New York, William McGowan (McGowan), met the founders and board of Microwave Communications, and agreed to infuse capital into the business...

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Rationale for the Merger

Verizon's management had been discussing its planned acquisition of MCI with MCI's management since mid 2004. The other mergers in the industry encouraged Verizon to consider merger with MCI seriously. Seidenberg was keen on the merger as it would bring several new business customers, the national IP backbone, and the sales and customer support teams of MCI to Verizon. According to Seidenberg, "MCI is one of the few beachfront properties out there. It would have been crazy for us not to talk to Michael (Capellas) about what he and his team were doing. It was a very natural thing for us to do."...

The Merger Deal

Before Verizon disclosed its bid to acquire MCI, Qwest had also announced plans to acquire MCI at US$ 6.3 billion. After Verizon put forward its offer, which was accepted by MCI's directors, Qwest increased its offer to US$ 8 billion. Several shareholders of MCI expressed their concern about the company agreeing to a merger with Verizon, while Qwest was offering a higher bid. However, Verizon said its own merger with MCI would be beneficial for both the companies. According to the company's spokesperson, "We made an offer, and it was accepted. That is the status. As far as we are concerned, we have a strategic fit that no one else can match."...

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