© 2009 Merle Erickson

What tax basis in MCI stock (in dollars) would BT take (approximately)? See Excelspreadsheet with MCI Price Data.

Several firms tried to acquire MCI in 1997 before an agreement was reached withWorldCom. Each of these entities was proposing a slightly different tax structure forthe acquisition. WorldCom ultimately acquired MCI, but for purposes of the case,

you should use deal values as of October 1997 (Some of the offers included stockcomponents and therefore the deal values change with overall market movements).You have all of the necessary documents related to the transaction, but you will need

to collect som^ additional data for a few of the questions.

With respect to answering the numerical questions below, use approximations. You will be*v--"given credit for producing an answer that is "in the ballpark," in part because this deal

spanned a broad time period making precise answers non-sensical in many cases.

^ Assume that all Goodwill on MCFs balance sheet is not tax deductible.

British Telecom's Offer:^^ ••^' • - / . v

1.British Telecom had an agreement to acquire MCI. What were the terms (approximately)of this agreement? (see transaction details below).j

2.What would the tax implications of this acquisition be for MCI's shareholders?

3.What type (tax type by code section) of merger is this, based on your best guess (seemerger documents that are attached)? /^

4.What were the tax implications of this merger structure for British Telecom?

•What gross tax basis in MCI's assets (in dollars) would BT take (approximately)?Assume that all of MCI's deferred taxes relate to timing differences betweenbook and tax depreciation (use the deferred tax data from the balance sheet, notthe footnotes). Compute the basis as of June 30,1997. (Use MCI's June 30,1997balance sheet and MCI's 12/31/97 income statement and footnotes as the basisfor your computations.)|

••-.'*j•What net tax basis in MCI's assets would BT take?

42 Cases in Tax Strategy

Analysis of the tax consequences of WorldCom^s Acquisition of MCI

;Merle Erickson

© 2009 Merle Erickson

Cases in Tax Strategy 43

GTE'sOQeri "'"" *

/hat were the terms of GTE's offer for MCI?

2.What would the tax implications of this acquisition be for MCI's shareholders?

3.What type (tax type) of merger is this, based on your best guess (see mergerdocuments that are attached)?

4.What were the tax implications of this merger structure for GTE?

•What gross tax basis in MCI's assets (in dollars) would GTE take(approximately)? Assume that all of MCI's deferred taxes relate to timingdifferences between book and tax depreciation (use the deferred tax data from thebalance sheet, not the footnotes). Compute the basis as of June 30, 1997. (UseMCI's June 30, 1997 balance sheet and MCI's 12/31/97 income statement andfootnotes as the basis for your computations.)

•What net tax basis in MCI's assets would GTE take?

•What tax basis in MCI stock (in dollars) would GTE take (approximately)?

WorldCom's Offer (attached are excerpts from WorldCom's financial statements and press releaseswhich detail what you need to answer this portion of the case.):

1.What were the terms of WorldCom's offer for MCI?

2.What would the tax implications of this acquisition be for MCI's shareholders?

3.What type (tax type) of merger is this, based on your best guess (see mergerdocuments that are attached)?

4.What were the tax implications of this merger structure for WorldCom?

•What gross tax basis in MCI's assets (in dollars) would WorldCom take(approximately)? Assume that all of MCI's deferred taxes relate to timingdifferences between book and tax depreciation (use the deferred tax data from thebalance sheet, not the footnotes). Compute the basis as of June 30, 1997. (UseMCI's June 30,1997 balance sheet and MCI's 12/31/97 income statement andfootnotes as the basis for your computations.)

•What net tax basis in MCI's assets would WorldCom take?

•What tax basis in MCI stock (in dollars) would WorldCom take (approximately)?

.- '>••*"•