December 6, 2011
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Leap Wireless (Nasdaq: LEAP ) briefly rose more than 10% on above-average volume when the company announced plans for a purchase and partnership agreement with Verizon's (NYSE: VZ ) wireless business unit.
So what: Leap will pay $204 million for 12 megahertz of the 700 MHz wireless spectrum in Chicago even as it sells PCS and AWS spectrum in other regions. Leap expects to realize $100 million from the Verizon transactions, net of fees and debt repayments.
Now what: My guess is the promise of balance-sheet flexibility prompted the early run. Why? Leap has five times as much debt as equity as of this writing. Obligations also consume more than 80% of capital. Any move to reduce those ratios -- even if it comes at the cost of some spectrum -- is a good move. Do you agree? Would you buy shares of Leap Wireless at current prices? Please weigh in using the comments box below.
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