A $96 billion business that makes a $6.75 billion acquisition is making a modest investment. A $7 billion company that makes an $8.45 billion deal is betting the ranch.
To make that bet pay off, Qwest plans to slash expenses at MCI. Many telecom analysts are skeptical of Qwest's claim that it can cut as many as 16,000 jobs -- and do so without hurting the quality of service to customers. That "promise" alone argues that the interests of the employees and the public would better be served by a merger with Verizon, which claims fewer than half as many job cuts will be needed.
Qwest Communication's headquarters in Denver looms over MCI's branch offices. Qwest wants to buy MCI for $8.45 billion.
(Jack Dempsey -- AP)
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Absolutists on the issue of shareholder rights argue that neither the employees nor the customers matter. Nor does the risk that the combined company will founder down the road. If one offer gives stockholders more money today, then it should be accepted, they argue in support of Qwest (and in support of the hedge funds that are pressing MCI to take the money.)
MCI board members so far have taken a broader view of the choice. After all, they got their jobs because their predecessors were ousted during the bankruptcy and ultimately forced to pay millions in damages out of their own pockets for not stopping the accounting fraud.
But a merger decision must be ratified by stockholders, and with two-thirds of MCI's stock in the hands of quick-buck artists, that could be difficult. The worst thing that could happen -- and it's a real possibility -- is that the hedge fund stockholders hook up with Qwest and a stage a hostile takeover by voting out MCI's management.
While the future of MCI hangs in the balance, the final act of its tragic marriage to WorldCom is playing out.
Today, court proceedings are scheduled to begin in lawsuits filed on behalf of stock and bond holders against the accounting firm of Arthur Andersen LLP, which signed off on the fraudulent bookkeeping that ultimately destroyed WorldCom.
All the other defendants in the cases have settled, including the investment banks that sold WorldCom stocks and bonds based on phony financial records and the former WorldCom board members who allowed the fraud to occur. Together, they have agreed to pay $6 billion in damages, $4.8 billion to bondholders and $1.2 billion to shareholders.
Add the $433 million in restitution wrung out of Wall Street by the Securities and Exchange Commission in another case, part of which goes to WorldCom investors, and shareholders stand to get back more money than the victims of any other corporate fraud ever.
The deadline for claiming a piece of the settlement was March 4, but the courts have the authority to sweep in investors who file belated claims, said a spokesman for New York State Comptroller Alan G. Hevesi, who is supervising the cases because the state's employee pension fund was the biggest loser in the debacle. Anyone who bought WorldCom stock or bonds between April 29, 1999, and June 25, 2002 is potentially eligible to get some money back. Details on eligibility and how to file a claim can by found at www.worldcomlitigation.com.