1. Strategic Synergies What is the background of MCI, Verizon and Quest? In terms of strategic smergies (without considering the terms of the bid offers), do you believe which of the two combinations, MCI+Verizon and MCI+Qwest, is a better t? 2. Board's Responsibility In general, the Board of Directors assumes duciary duties for shareholders. What is the \"Revlon\" Rule in the context of Merger and Acquisition? According to this rule, should the Board of MCI accept the offer from Verizon or Qwest? In evaluating the goal of the Board to maximize the shareholder value, one might need to take into account the shareholder heterogeneity. From this case, certain institutional investors have strong preference for the bid from Qwest, but appear to have short investment horizons. Does their interest potentially conict with long-term shareholder values? 3. Terms of the Bid Offers Exhibit 5 (Page 12) shows the details of the offer terms for MCI as of March 29, 2005. At rst glance, the offer from Qwest seems more attractive: higher cash value and higher stock value. Why does the Board prefer the offer from Verizon? In addition to the different past acquisition history of the two companies, a detailed analysis of the terms indicates that they have different combinations of optionality (embedded call and put options). For instance, although both offers have a call option component when the stock prices of acquiring companies increase to a high level, the down-side protection against price declines is different. For Qwest, when share price is below 3.74, how the value of the offer look like in terms of optionality? How does this option feature inuence the Q value of the two offers? 4. Stock-Based Merger Wave In late 1990s, many companies were pursuing acquisition-based growth strategies. A notable example is the acquisition of MCI by WorldCom, which proved to be a failure. A salient feature of this type of acquisition is the large part of the deal being nanced by the acquiring company's stocks. Why do acquires prefer to pursue stock-based acquisition? You may illustrate your point using the deal of WorldCom-MCI. (Hint: if company A buys company B when Company A's share is overpriced, would stock-based acquisition be a desirable strategy?)