The Outcome Assuming the Merger is Completed

Per Share Market Value of BT at Merger Completion 60.00 50.50 45.00 Gain / (Loss) on Long Position: Value of each BT share received 60.00 50.50 45.00 x Number of BT shares received 1.30 1.30 1.30 Value of consideration received 78.00 65.65 58.50 - Basis in MCI stock (62.00) (62.00) (62.00) Gain / (Loss) on Long Position 16.00 3.65 (3.50) Gain / (Loss) on Short Position: Price of BT at time of short sale 50.50 50.50 50.50 - Market value at merger completion 60.00 50.50 45.00 (9.50) 0.00 5.50 x Number of BT shares shorted 1.30 1.30 1.30 Gain / (Loss) on Short Position (12.35) 0.00 7.15 Total Gross Spread at Merger Completion 3.65 3.65 3.65

Source: Note on Risk Arbitrage

No matter at what prices the deal closed, merger arbitrageurs are be able to lock-in a risk-free profit. And the only risk of the merger arbitrage is the completion risk.

MCI & BT Controversy

The two companies were expected to gain the benefit from global communication merger by using each other competency; such as, a large multinational customer base in MCI and the local market expertise in BT. To merge the new global communication company, BT agreed to offer .54 of American Depository Share (ADSs) for each MCI

share, plus $6 cash per MCI shares, and also gave a dividend with a total value of $3.6 billion. However, the market and economic condition had been changed, so the original term had to be revised, resulting in less appealing to MCI’s shareholders. The new terms were that each MCI shareholder would receive 0.375 (ADSs) and cash payment of $7.75. Those changes mainly came from $800 M loss in MCI’s local-service business. Besides, MCI also was losing its