WorldCom Essay Example | Topics and Well Written Essays - 500 words

WorldCom - Essay Example According to the case, Ebbers and Sullivan were the main controllers and master minds behind the success of WorldCom from the time it was Long Distance Discount Services (LDDS). The mention of this massive success is however overlapped in the case by the accusations of bringing down the company to bankruptcy as a result of massive accounting irregularities, fraud and conspiracy. Once the company started going under and an external auditing firm hired to come and audit it, the recommendations from this audit firm were not taken into action immediately by the auditing committee of the company. The case explains that if immediate actions had been taken to examine the massive accounting irregularities discovered by Cooper (an external auditor), then WorldCom would have been saved from bankruptcy. But this was not to be the case. The board on the other hand had so much faith in Ebbers leadership as CEO and they were also afraid of the implications his withdrawal of his shares and input to the company would have on WorldCom that they continued to lend him loans and at a lower interest rate. These loans given to Ebbers were for his own personal growth and maintenance and they accumulated to over $300 million which was company money but no repayments were forthcoming to benefit the company. Sullivan together with the fraudulent stock broker firm (Salomon Smith Barney brokers) hid the truth of the company’s economic performance from the shareholders and stockholders. According to these two crucial groups of people, the company’s quarterly profits and cash flow earnings was admirable and even more people still refused to sell their shares even when rumors of bankruptcy of the company started being aired. Later discovery was that the CFO was misrepresenting the accounting records without people realizing and this was even worse on the last five quarters before

Evaluating the Shareholders Wealth Consequences in Defeating Hostile Essay

Evaluating the Shareholders Wealth Consequences in Defeating Hostile Takeovers of UK Companies - Essay Example Changes in the structure and organisation of a company's operations may be reflected in performance data, but these data provide little indication of the nature and extent of the structural changes. Changes in the functions performed within the company, the product mix, the availability of finance, input sources, industrial relations and many more qualitative aspects of the company's operations may also have significance for the long-run development of the acquired company which would not be reflected in relatively short-run performance data (Ashcroft & Love, 1993, p. 39). An example of a company's effort to substantiate changes through a hostile takeover is that of Olivetti. This Italian industrial giant was long known as a typewriter and office machine company, which almost failed in the 1980s. With the entry of several US competitors in the late 1980s, Olivetti found itself in hot water as it is being toppled down by IBM, Dell, Toshiba, and Compaq. The solution was not obvious, though one business that Olivetti entered in the 1980s, telecommunications, has turned out to be the one in which the company is trying to bet its future. With the bold bid for Telecom Italia in 1998, Olivetti launched one of the first major hostile takeover bids in Europe. After successfully overcoming the strong opposition of Telecom Italia's board and an attempt to recruit Deutsche Telekom as a white knight, Olivetti did take control of the telecommunications company. Now it remains to be seen if Olivetti really can remake itself as a leading telecommunications company mo ving into the twenty-first century (Raghavan and Naik, 1999). In occasions of hostile takeovers, the final decision of whether to allow it rests with the stockholders. In an earlier time, they were largely individuals whose purpose in investing was to earn dividends and hope the stock would appreciate in value so they could sell it at a gain for their retirement. Such "little investors" in our era have been replaced by giant investment funds managed by shrewd professionals with sophisticated computer programs to guide their decisions. They work for mutual funds, pension funds, and other large-volume investors with billions of dollars that they must "keep working" for the benefit of their shareholders or members (Loughran & Vigh, 1997). As there are already strong takeover defences presently available to corporations, shareholders do not have claim to decide whether or not proposed takeover offers are in the best interests of the company. Unfortunately, managerial decision-making may become conflicted for any number of reasons when the company becomes a target for takeover. The burden of proof to show there's no conflict of interest is clearly on the shoulders of the management of the target company. Fact is that any expenditure to "defend" the company from a hostile takeover need to be ultimately justified by enhanced shareholder value. Apparently, during takeovers, the management represents the company, regardless of whether or not it would be more beneficial if shareholders accepted a takeover offer and reinvested the offer value (Neis, 1997). It could also happen that management could overestimate its own ability to create value for shareholders and mistakenly turn down superior offers. Another dilemma that dese rves more careful review is that management owning a substantial number of