MCI Communications Corporation (1983)
1-What is the likely level of MCI’s external needs over the next several years? By how much could they be expected to vary? Why?
2-Critique MCI’s past financial strtategy, giving attention to the types of securities on which it has relied. Why did MCI finance itself in the manner it did?
3-Based upon your analysis of the outlook for MCI and the competitive and regulatory evolution of the industry, recommend a capital structure policy for MCI and defend your proposal against plausible events.
4-Assume that Mr.English, the MCI chief financial officer, has the following financial alternatives available to him as of April 1983:
a)$500 million of 12 1/2 , 20 year subordinated debentures
b)$400 million of common stock
c1)$600 million 7 5/8 20 year convertible subordinated debentures with conversion price of $ 54 per share (i.e., $1,000 bond would be converted into 18.52 conmmon shares)
c2) $1 billion of a unit package consisting of a $1000 7 ½, 10 year subordinated debenture and 18.18 warrants, each entitling the holder to purchase one share of MCI common stock for 55$. The warrants would be exercisable until 1988 and are callable. The exercisei price of the warrants would be payable either in cash or by surrender of the debentures valued at their principal amount.
Which if any of these alternatives would you recommend that Mr.English take? Why? In broad outline, what financing steps would you recommend he take over the next several years?
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