Team D & D
Team D & D
Worldcom/ MCI is going through a restructuring effort after their bankruptcy filing and the surviving company is called MCI. Fresh round of shares are issued and previous debt has been settled.
Why MCI is a target?
* Most extensive communications network in the world with a customer base in 200 countries
* One of the most extensive Internet Protocol backbones and the largest carrier of international voice traffic
* Least debt in phone industry ($6b) in the industry through restructuring process following bankruptcy
* $5b cash in bank
* Market trends indicated that the market will move towards broadband, therefore MCI was ...view middle of the document...
18% discount (including synergies). MCI stockholders are bound lose value of their share if they accept Verizon’s offer.
Qwest’s offer: $26 per share of MCI stock, $10.50 per share in cash and $15.50 per share in stock. This results in a valuation of $8.4B. If the price of the Qwest stock is between $3.74 and $4.57, then exchange ratio will be adjusted to provide a stock price of $15.50. If Qwest price is < $3.74, then exchange ratio is 4.1444; If Qwest price is > $4.57, then exchange ratio is 3.392. This deal does have premium for MCI shareholders ($2.2/ share). As of March 29, 2004, MCI Stock Price was $23.78 per share; therefore Qwest’s offer is a 9.3% premium over the current stock price (including the synergies)
In case of Verizon, there is no such opportunity since acquirer (Verizon) is getting some premium from the deal whereas target (MCI) is getting a discount.
In Qwest’s offer, it would be a good opportunity for a merger arbitrageur because during a stock-for-stock merger, the arbitrageur buys the stock of the target company (MCI) while shorting the stock of the acquiring company (Qwest). So, when the merger is complete, and the target company’s stock is converted into the acquiring company’s stock, the merger arbitrageur simply uses the converted stock to cover his or her short position. The reason is that during the M&A transaction, the stock price of the target company typically rises, and the stock price of the acquiring company typically declines based on the premium offered.
Current financial and performance comparison:
A comparison of the current financial picture is given in Table 2.
| Verizon | Qwest | Comment |
Cash & cash Equivalents (millions) |...