AT & T to Acquire Leap Wireless for $1.2 Billion

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AT&T will acquire Leap Wireless International for close to $1.2 billion.  The company will pay $15 a share in cash for Leap, which is approximately 88 percent above Leap’s closing price on Friday.  Leap is a prepaid cell phone service provider.

In this deal, AT&T will gain 5 million new customers and acquire Leap’s network, licenses and retail stores.  On April 15, leap had $2.8 billion of net debt.  Under terms of the deal, Leap shareholders will receive a contingent right to net proceeds from the sale of spectrum in Chicago.  In 2012, Leap acquired Spectrum for $204 million.

In after-hours trading on Friday, Leap’s stock more than doubled, climbing to almost $17 a share.  It closed it $7.98 a share on Friday.  Leap is based in San Diego California and operates under the Cricket brand name.  AT&T plans to retain the Cricket name.  Leap’s network covers approximately 96 million people in 35 states.

Brad Burns, an AT&T spokesman said, “Cricket’s employees, operations and distribution will jump start AT&T’s expansion into the highly competitive prepaid segment.”

This deal comes after months of speculation about the future of AT&T along with other wireless companies.  Smaller carriers like T-Mobile and Sprint have recently found merger partners, which fuelled questions about AT&T’s strategy.

Leap was previously approached in 2011 by AT&T, while it was pursuing a deal with T-Mobile. At that time, AT&T wanted to sell a piece of T-Mobile’s customer accounts to Leap.  However, the T-Mobile deal was later stopped by regulators.

Since then, market analysts have wondered how AT&T would find a partner to help it grow and defend against the market saturation in the telecommunications industry.  In June, it was reported in the Spanish newspaper that authorities had blocked a bid by AT&T for the Spanish carrier, Telefonica.

According to a person briefed on the matter, AT&T recently started targeting Leap for acquisition.  And, the deal came together in a matter of weeks.  Previously, Leap talked with others, including T-Mobile, Metro PCS, and Softbank of Japan.

Leap pushed AT&T for contingent value rights to increase the payout to its investors.  The person added, the deal’s high premium may prevent others from jumping in with rival offers.

According to Craig Moffett, a telecommunications analyst who recently started his own company, this deal is still unlikely to solve AT&T’s challenges.  He said, “It does not really change the trajectory of AT&T or its deal-making.  There’s not much that AT&T can do anymore in the United States.  The rest of the wireless business is probably off limits for regulatory reasons.”

Moffett continued, “But for Leap, the deal puts them out of their misery.  The only real question for Leap is whether AT&T is the best and final offer.”

If this deal closes, Cricket customers will get access to AT&T’s 4G mobile network while AT&T will expands Cricket’s reach.  And, AT&T will have access to the prepaid market.

In a release on Friday AT&T said, “The combined company will have the financial resources, scale and spectrum to better compete with other major national providers for customers interested in low-cost prepaid service.”

Source: www.dealbook.nytimes.com

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