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?

---

Definitions:

Major Product Segments

Distinct categories within a company's product line that cater to different markets or customer types.

Financial Statements

Comprehensive reports prepared from accounting records that present an entity's financial position, performance, and cash flows.

Business Segment

A distinct part of a company that can be identified by the products or services it provides or by the geographic markets it operates in, often reported separately in financial statements.

Segment Analysis

The practice of analyzing different business segments or units within a company to assess their performance or profitability.