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notes payable of $3.4 billion). From 1992 and for the next eight years, WorldCom
made at least one significant acquisition each year.
33. In 1996, after the enactment of the Telecommunications Act of 1996
which allowed long distance telephone carriers to provide local telephone service,
WorldCom, through more acquisitions, moved into the local telephone markets
and increased its Internet services. WorldCom reported revenues of about $4.8
billion that year along with about $4.8 billion in long-term debt and notes payable.
C. 1998: The MCI Merger
34. In 1998, WorldCom culminated its merger strategy by completing
three multi-billion dollar mergers: MCI Communications Corporation (“MCI”),
Brooks Fiber Properties, Inc., and CompuServe Corporation.
35. WorldCom’s bid for MCI was considered a “surprise” bid because
MCI had entered into a merger agreement with British Telecommunications to be
purchased for $42 billion. However, when MCI announced in August of 1997,
that it would have unexpected losses of $800 million, MCI’s stock plunged 18%
and, in order to complete the merger with British Telecommunications, MCI
agreed to a 22% decrease in its purchase price. MCI’s stock plunge had a negative
effect on Salomon because it held an $100-$500 million arbitrage position.
Salomon needed to find another merger partner to turn-around its losses and it
went to WorldCom because it knew that WorldCom was always looking for
merger partners so that it could manipulate its financial statements. Thus, in
October of 1997, WorldCom announced its intention to commence an exchange
offer to acquire all of MCI’s stock. On November 9, 1997, WorldCom and MCI
entered into a merger agreement. WorldCom offered to pay $30 billion, $7 billion
more than British Telecommunications’ revised bid. At the time, the MCI-
WorldCom merger was touted as the largest merger in history and had a value of
$40 billion. On March 11, 1998, the shareholders of WorldCom and MCI
approved the merger and the merger was completed later that year.
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COMPLAINT