NEW YORK: AT&T, the second-largest US wireless carrier, agreed to buy Leap Wireless International for $1.2 billion, giving the company 5 million customers, more airwaves and a larger piece of the pay-as-you-go market.
Under the deal, Leap shareholders also will get the right to proceeds from the sale of Leap’s 700-megahertz spectrum in Chicago, which was bought for $204m last year, according to a statement. The offer of $15 a share in cash represents an 88 percent premium over Leap’s closing price of $7.98 on Friday. San Diego-based Leap also has $2.8bn in net debt.
AT&T’s CEO Randall Stephenson has been on a hunt for spectrum — the airwaves that let mobile devices make calls and download data — ever since regulators blocked his $39bn proposal in 2011 to acquire Deutsche Telekom’s T-Mobile USA unit.
Since then, he’s resorted to smaller acquisitions, such as a $1.9bn deal in January to acquire airwaves from Verizon Wireless, to build enough capacity to handle increasing demand for music downloads and video streaming on mobile devices.
“This is another example of the escalating value of spectrum as data pricing gets more competitive and data devices like tablets become more ubiquitous,” said Kevin Smithen, an analyst with Macquarie Securities USA. He has the equivalent of a sell rating on AT&T and is neutral on Leap.
The deal extends a frenzy of telecommunications mergers this year as small US carriers look to team up with larger companies. T-Mobile merged with Leap rival MetroPCS Communications in May, and SoftBank completed its purchase of Sprint Nextel on July 10. Sprint also closed its own acquisition of Clearwire earlier this week.
MetroPCS and Deutsche Telekom discussed including Leap in a transaction before deciding to combine MetroPCS with T-Mobile, a person familiar with the matter said in November. SoftBank founder Masayoshi Son has spoken about combining the industry’s smaller players to better compete against AT&T and Verizon Wireless, the biggest US mobile-phone company.
Leap and MetroPCS both focus on the prepaid market, where customers don’t sign up for long-term contracts. The approach allowed the carriers to grow quickly by appealing to younger consumers and people with poor credit.
Still, Leap struggled to make money in a low-margin industry and competition from larger carriers has eroded sales growth. It has posted losses every year since 2005, and sales this year are projected to drop 6 percent.
The US government balked at AT&T’s 2011 T-Mobile deal in part because it would reduce the number of carriers competing in some markets. AT&T said Friday it will keep and expand Leap’s Cricket brand after it acquires the company’s retail stores, customers and a network that covers about 96 million people in 35 states. Leap has 3,400 employees.
WP-Bloomberg
