Mci Case Analysis

In: Business and Management

Submitted By bongo
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Case 10: MCI Communication Corp.

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MCI External Financing Needs from 1984 to 1989

Due to the telecom industry’s competitive history, MCI has to continue growing to maintain and increase their market share. Their external financing needs will keep increasing over the next few years as the operating margins shrink in an attempt to acquire 20% market share by 1990. To accomplish this, MCI will need to infuse huge capitals into their business. As per the pro forma statements, MCI would need significant amounts of capital to finance their plans. The figures range from $890 million in 1984 to $2.76 billion in 1987. Looking back at history, MCI has been known for issuing stock and debentures/convertible debentures. To finance their forecasts, MCI will begin by selling $481 million in common stock in 1984 the same way it did in the past. The share price is currently $47 per share and MCI needs to capitalize on the high value while it can. From 1985 to 1989, MCI will sell convertible debentures. A Convertible debenture is a type of loan issued by a company that can be converted into stock by the holder and, under certain circumstances, the issuer of the bond. The debentures allow investors to turn them into stock while at the same time allow MCI to issue more debt. Thus, each year from 1985 to 1989, MCI can take on more debt while converting older ones. The additional cash will provide for MCI’s growth plans and allow them to compete in a dynamic market.

Pro Forma Statements

Pro Forma statements are helpful in estimating future inflows and outflows. In any growing company, pro forma statements are vital in constructing future plans for growth. For MCI, we made assumptions based off growth in the case book. Also, we assumed that the economy was going to remain stable in the successive years.…...

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