What are the strengths and weaknesses of Verizon, MCI, and Qwest? Where are the synergies in the proposed combinations?
Evaluate the two offers in Exhibit 7. What explains the two structures? In each case, what is the value to MCI shareholders?
Merger arbitrage (or risk arbitrage) funds speculate on the completion of stock and cash mergers, typically buying the target and hedging the risk of the acquirer’s shares according to the exchange ratio in stock mergers. What positions would risk abs take in this deal? How would their positions change if the board appeared to favor the Qwest offer?
Consider the WorldCom-MCI merger and the Qwest-US West merger? Trying to avoid hindsight bias, should the boards of MCI and US West have accepted those offers? What is the obligation to shareholders? Was the obligation fulfilled? What about WorldCom and Qwest? Did their shareholders benefit?
Which offer should MCI accept?
What approach should Verizon take to win the takeover contest? Qwest?