Buy Back
1.) Impact of the share buy-back on MCI's:
a) Shares outstanding
Assumptions
The assumption is made, that MCI exactly offers 2 billion $ of long-term
debt to finance its stock repurchase program and double its debt/equity ratio
(book value) from approximately 36% to 72%.
For the immediate buy-back of a large amount of shares MCI has to make a
tender offer for its own shares. It is assumed, that a premium of 10%
over the current share price, which results in a buy-back of $30.53 per
share.
Results
With these assumptions MCI is able to buy back 65.52 million shares for its
2 billion $ of new long-term debt, resulting in the reduction of the number of
outstanding shares from formerly 687 million to 621.48 million shares.
Thereby has to be noted that the figures in the case study differ: In MCI's
Income Statement the weighted-average number of common shares is stated
with 687 million (see case Exhibit 4, p. 360), and in the comparables sheet the......
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