Worldcom Case: Bankruptcy Protection

WorldCom was one of the leading telecommunication companies prior to its application for bankruptcy protection on July 21st, 2002. The firm’s decision to file for bankruptcy was a shocker move considering the amount of revenues and asset base the company had. It is believed that the firm was highly involved in fraudulent bookkeeping between the year 1999 and 2000 where they had managed to overstate its taxable income by at least $7 billion. It was also revealed that the company had committed itself to maintaining an earning to expense ratio which was relatively high. Therefore, the firm had a self-imposed high target which became relatively difficult to achieve over time owing to shrinking revenues. In the early years of the 1990s, the firm
The dominant value creating function is the main reason for the firm engagement in inorganic growth. Through this mode of growth, the firm improved the value of shareholders since the power and efficiency of the merged companies are better than the individual companies working separately. As a result, the value was captured in the anticipated synergies where the results of these mergers were evident based on the accelerated growth in revenues, profits, and assets. In addition, the mergers, especially the merger between world com and MCI, brought together two firms that have complementary strengths and assets (Hitt & Harrison, 2001). Through these mergers, the shareholders’ value was improved through operational cost reduction including, the reduction in reduced leased lined costs, and elimination of expensive terminal charges both locally and internationally. Also, the mergers eliminated duplication of activities and investments, adoption of best practices while sales and marketing forces have meshed thus making the established market channel to be better established. Moreover, the mergers and acquisitions helped the firm minimize the competition in the market, instantly add new brands to the firm’s product portfolio, instant access to fresh customer base and expansion to new geographical locations, gaining economies of scale over a reduced period of time, injection of new and diversified management skills and significant reduction of time to market thus giving the firm the competitive advantage (Gaughan, 2013). All these merger outcomes are value-adding since they enable merger process meet the characteristic of the value adding