After the Stock Acquisition,MCI Transferred Its Assets to TC Investments

question 87

Essay

After the stock acquisition,MCI transferred its assets to TC Investments Corporation in a liquidation transaction,after which TC Investments Corporation held MCI assets instead of MCI stock.TC Investments Corporation then changed its name to MCI Communications Corporation,and WorldCom changed its name to MCI WorldCom.
After these three steps,MCI Communications Corporation,which held the acquired MCI assets,ended up as a subsidiary of MCI WorldCom.Total assets of MCI WorldCom after the merger were $86 billion,including the stock of its subsidiary,MCI Communications Corporation.
On December 31,1997,prior to the acquisition,MCI had $576 million of U.S.NOL carryovers and $179 million of minimum tax credit carryovers.MCI WorldCom incurred expenses of $127 million in connection with the acquisition.MCI WorldCom recorded the transaction as a purchase for financial accounting purposes with the excess of cost over FMV being recorded as a combination of goodwill,in-process R&D costs,and other intangible assets.In addition,MCI WorldCom incurred $21 million in employee severance pay outlays.MCI stock options were converted into MCI WorldCom stock options.What type of reorganization did WorldCom and MCI engage in? What tax issues should the parties to the reorganization (MCI,BT,TC Investments Corporation,WorldCom,and the MCI and WorldCom shareholders)consider when evaluating the acquisition?

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Definitions:

Company Liability

The legal and financial responsibilities or obligations that a corporation may have due to its actions or policies.

Workplace Morale

The general condition of the psychological well-being, attitudes, satisfaction, and overall outlook of employees within a work environment.

Grapevine

An informal communication channel through which rumors and unofficial information are often spread within an organization or community.

Organizational Strategy

A plan designed to achieve long-term or overall goals within an organization.