The Verizon-MCI Merger
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Case Code: BSTR259 Case Length: 19 Pages Period: 2000-07 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.300 Organization: Verizon, MCI Industry: Telecom and Broadband Countries: US Themes: Mergers, Acquisitions, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
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."...
Post Merger Integration
In January 2006, Verizon and MCI closed the merger deal valued at US$ 8.5 billion. The shareholders of MCI received 0.5743 shares of Verizon for each share of MCI held along with additional cash of US$ 2.738 per MCI share. To achieve the synergies from the merger with MCI, Verizon expected to incur costs of US$ 1.5 billion in expense and US$ 2 billion in capital. On the merger, Seidenberg said, "This milestone for Verizon creates a new competitive force with the power of the global MCI network, and the reach of Verizon's broadband and wireless networks in the United States. Our added network capabilities and strong customer relationships provide a solid foundation for innovative and integrated wireless, wireline and multimedia services designed to meet customer demands for speed, mobility and control." After the merger, Verizon operated through three business units: Verizon Business; Verizon Wireless, which was a mobile operator; and Verizon Landline operations, which included broadband operations (Refer Exhibit V for Verizon's business segments after merger with MCI)...
The Road Ahead
Financial experts appreciated Verizon's move to acquire MCI through a combination of stock and cash without incurring any debt. Senior personnel at Verizon were of the view that the merger had provided the company financial stability. According to Gofus, "The newly combined companies are all more financially stable and the whole uncertain future question is just gone. If you're a global company, you need to know your partner is going to be there for the long haul and not be concerned about who's going to buy them."...
Exhibits
Exhibit I: History of Telecommunications Industry in the US
Exhibit II: Verizon's Business Segments before Merger with MCI
Exhibit III: SBC-AT&T Merger
Exhibit IV: Key Benefits of Verizon-MCI Merger
Exhibit V: Verizon - Post Merger Business Segments
Exhibit VI: Verizon's Stock Price Chart (June 2004 - May 2007)
Exhibit VII (A) and (B): Verizon - Selected Financial Data
Exhibit VIII (A): US Business Market Share - Telephone & Data Services
Exhibit VIII (B): US Consumer Market Share - Local & Long Distance
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