How much more in tax deductions from goodwill amortization would GTE get than WorldCom given the proposed structures? How much do you estimate is the present value of these tax deductions? Caves in Tax Strategy 45 Terms of the Various Acquisition Offers for MCI as of October 16, 1997* British Telecom offer: $36.875 total consideration (Cash and Stock) (57.75 cash plus 0.375 BT shares) Worldcom offer: $41.50 total consideration (all Worldcom Stock) (1.1711 shares of World Com stock for each share of MCI stock, Worldcom stock valued at $35.4375 per share) GTE offer: $40.00 total consideration (100% Cash) Some FACTS about the deals' values that may not be apparent from the case: • BT deal valued at $26 billion. • GTE deal valued at $28 billion. • WorldCom deal valued at about $30 billion. The shares that would be purchased do not tie to the total shares on WorldCom's financial statements, thus the deal values above don't tie to the per share amounts multiplied by the total MCI shares outstanding per the financial statements. ource: THE BATTLE FOR MCI: THE SHAREHOLDERS; Anatomy of a Bid: Less From GIE may Mean More, New York Times By FLOYD NORRIS, 10/16/97 (Section D; Page 1). © 2009 Merle Erickson CU I Tax Strategy 47 Worldcom Merger Structure Data from World Com's 424A filed 10/14/1997: WorldCom, Inc., a Georgia corporation (“WorldCom”), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus (the “Prospectus”) and the accompanying Letter of Transmittal (collectively, the Offer”), to exchange shares of common stock, par value $.01 per share, of WorldCom (the “WorldCom Common Stock”) for each outstanding share (each, a “Share”) of common stock, par value $.10 per share (the “MCI Common Stock”), of MCI Communications Corporation, a Delaware corporation (“MCI”) (including the shares of MCI Common Stock into which the outstanding shares of Class A common stock, par value $.10 per share, of MCI (the “Class A Common Stock”) would be automatically converted in accordance with the provisions of MCI's Restated Certificate of Incorporation upon the tender of such shares pursuant to the Offer), together with the associated preferred stock purchase rights (each a “Right” and, collectively, the “Rights”) issued pursuant to a Rights Agreement, dated as of September 30, 1994, between MCI and Mellon Bank, N.A., as Rights Agent, as amended (the “MCI Rights Agreement”), validly tendered on or prior to the Expiration Date and not properly withdrawn. The holder of each Share validly tendered on or prior to the Expiration Date and not properly withdrawn will be entitled to receive that number of shares of WorldCom Common Stock equal to the Exchange Ratio. “Exchange Ratio” means the quotient (rounded to the nearest 1/10.000) determined by dividing $41.50 by the average of the high and low sales prices of WorldCom Common Stock as reported on The Nasdaq National Market (the “WorldCom Average Price”) on each of the twenty consecutive trading days ending with the third trading day immediately preceding the Expiration Date; provided, that the Exchange Ratio shall not be less than 1.0375 nor greater than 1.2206. Accordingly, each Share will be exchanged for WorldCom Common Stock having a market value of $41.50 if the WorldCom Average Price is between $40.00 and $34.00. If the WorldCom Average Price is greater than $40.00, each Share will be exchanged for WorldCom Common Stock having a market value of more than $41.50 and, conversely, if the WorldCom Average Price is less than $34.00, each Share will be exchanged for WorldCom Common Stock having a market value of less than $41.50. Cash will be paid in lieu of any fractional shares of World Com Common Stock. On the closing price of WorldCom Common Stock as reported on The Nasdaq National Market was $ . Based on a World Com Average Price equal to that amount, each Share would be exchanged for WorldCom Common Stock having a market value of $ The actual WorldCom Average Price and Exchange Ratio will be calculated as of the third trading day immediately prior to the Expiration Date, as described above, and a press release will be issued announcing the actual Exchange Ratio prior to the opening of the second trading day prior to the Expiration Date (as it may be extended from time to time). Unless the context otherwise requires and unless the Rights are redeemed, invalidated or inapplicable to the acquisition of Shares pursuant to the Offer and the Merger (as hereinafter defined), all references to the Shares shall include the associated Rights. h NCES. The Offer is structured to be tax-fre sition Proposal would result in FEDERAL INCOME TAX CONSEQUENCES. The Offer is holders of Shares, while the Revised BT Acquisition Proposal would re holders of Shares being taxed on gain from the exchange to the extent cash received. In the opinion of Bryan Cave LLP, special counsel to Wa exchanges of Shares for WorldCom Common Stock pursuant to the offe Merger, as described below, should be treated for federal income tax hanges pursuant to a plan of reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code' Consequently, no gain or loss should be recognized by holders of Share such exchanges, except with respect to the receipt of cash in lieu of fract shares of WorldCom Common Stock. See “Certain Federal Income Tax Cane cial counsel to WorldCom, pursuant to the Offer and the d for federal income tax purposes as ederal Income Tax Consequences.” According to the Original BT/MCI Proxy Statement/Prospectus, a MCI stockholder exchanging Shares for Concert ADSs and cash would realize gain measured by the excess, if any, of (i) the sum of the amount in cash and the fair market value of the Concert ADSs received over (ii) such stockholder's tax basis in the Shares, which realized gain will be taxable to the extent of the cash received. ACCORDINGLY, EVEN IF THE MARKET VALUE OF THE REVICE ACQUISITION PROPOSAL WERE EQUAL TO THE MARKET VALUE OF THE O MCI STOCKHOLDERS WOULD RETAIN MORE VALUE UNDER THE OFFER BEC OF ITS TAX-FREE NATURE. VALUE OF COMBINED COMPANY'S STOCK FOLLOWING THE TRANSACTION. As noted above, the Offer provides a substantial premium to holders of Shares compared to the Revised BT Acquisition Proposal. However, MCI stockholders should also consider the prospects of the combined company that would result from each proposed transaction in assessing the likely value of each prospective combined company's stock after a combination with MCI. World Com believes that MCI stockholders would be better positioned to realize higher returns in the future through ownership of a WorldCom/MCI combined entity than through ownership of a BT/MCI combined entity. The Offer and the Merger are expected to be accretive to WorldCom's earnings by as much as 22% in the first year after closing with synergies of approximately $2.5 billion in the first year, growing to approximately $5 billion in the fifth year. These synergies are expected to result from better utilization of the combined network and other operational savings. Because WorldCom has already established extensive domestic local network facilities, a WorldCom combination with MCI is expected to achieve significantly higher synergies than possible under the Revised BT Acquisition Proposal. See “–Synergies” and “Cautionary Statement Regarding Forward-Lookus Statements” below. Cases in Tax Strategy 49 WORLDCOM OFFERS MCI SHAREHOLDERS A SUPERIOR DEAL WITH GREATER POTENTIAL VALUE HIGHER PRICE AN premium than PRICE AND VALUE: The WorldCom proposal produces a significantly higher um than the BT proposal. By supporting WorldCom's proposal, MCI holders will receive a better performing stock and will own a icantly higher proportion of WorldCom than they would of a combined significantly higher BT-MCI entity. Based on closing stock prices on September 30, 1997, WorldCom's offer represents over a $12 per share premium to the value in the market of BT's acquisition proposal — that's a $9 billion premium to the proposed BT acquisition. Unlike BT's acquisition proposal, WorldCom's offer is structured to be totally tax-free to MCI shareholders. 6 WorldCom's transaction can close on essentially the same time frame as BT's acquisition of MCI. BEST PERFORMING STOCK: WorldCom is dedicated to the creation of shareholder value and has the strongest track record in the industry for stock performance. o WorldCom has provided investors with a total compound annual return of 55.8%, compared to 4.3% for MCI and 9.4% for BT, since the beginning of 1990. o Under WorldCom's offer, MCI shareholders will receive a stock with greater value today that is better positioned to realize higher returns in the future. FAR MORE SYNERGIES: Our proposal offers greater identifiable synergy benefits than the BT proposal, as described in greater detail in the enclosed materials. o By 1999, synergies in a WorldCom-MCI merger are expected to reach at least $2.5 billion; by 1999, synergies in a BT acquisition of MCI are estimated at only $400 million. o Over five years, WorldCom-MCI's synergies are expected to total at least $15 billion, compared to $2.4 billion for BT's proposed acquisition © 2009 Merle Erickson

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