AT&T Makes a Leap of Faith

The great carrier consolidation of 2013 continues!

There had always been speculation of what a great fit Leap Wireless (UNKNOWN: LEAP.DL  ) would be with MetroPCS. Instead, MetroPCS decided to pair with T-Mobile in a reverse merger that would make the magenta carrier publicly traded in the U.S. for the first time. That was after AT&T (NYSE: T  ) failed to acquire T-Mobile, when the Department of Justice vetoed the deal years ago. Meanwhile, SoftBank has enmeshed itself with Sprint and Clearwire, despite DISH Network's efforts to cut in on the action.

Now AT&T wants to go with Leap, acquiring the small pre-paid carrier in a $1.2 billion deal that values Leap at $15 per share. Ma Bell will be paying it all in cash, and will get all of Leap's licenses, network assets, retail stores, and roughly 5 million subscribers. Leap's Cricket brand will continue to fly under AT&T's umbrella, but Cricket customers will soon be able to access AT&T's broader LTE network as well.

In no uncertain terms, this deal is very much about spectrum. The 5 million new subscribers alone aren't a game-changer compared to AT&T's current retail customer base of 77.9 million (excluding wholesale connections and connected devices). It will, however, substantially add to AT&T's prepaid subscriber base, which was just 7.1 million at the end of Q1.

The transaction includes valuable PCS and AWS spectrum bands that cover 137 million people and will help AT&T boost its LTE capacity. Leap investors will also get a contingent right that entitles them to some of the net proceeds from the sale of a 700 MHz "A Block" spectrum license in Chicago. Leap bought that chunk last August for $204 million.

There are a few interesting plot twists. Leap has traded as high as $17.25 this morning, over $2 higher than the proposed deal price. That premium is also related to the aforementioned spectrum sale that Leap investors will get a piece of, which is valued at an estimated $2.20 per share. It's also possible that investors are hopeful of an unsolicited rival bid coming in, which is what happened in the Softbank/Sprint/Clearwire/DISH situation.

It's also true that regulators aren't too keen already on the idea of AT&T growing its spectrum position even further, so they could potentially move to block the merger like they did when Ma Bell tried to scoop up T-Mobile in 2011. AT&T may be willing to sell off spectrum in certain markets to ease regulatory concerns and improve the chances of approval.

Consumer advocacy group Public Knowledge has already spoken out against the deal. In a statement, Public Knowledge Senior Vice President Harold Feld said, "AT&T already has more wireless capacity than it needs to serve its customers, and it should focus on using what it has rather than continuing to try to buy out competitors."

There are several hurdles to clear for AT&T to acquire Leap, but Ma Bell has faith that the deal will close in six to nine months.

AT&T is a favorite among dividend investors. If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 16, 2013, at 10:42 AM, MightyMinnow wrote:

    The only U.S. growth left (in smart phones) is seniors that are computer illiterate. My plan is for T to offer Apple free instructions for new smartphone buyers, as the replacement for unsustainable subsidies.

    Seniors might not last as long but they will opt to shop online for personal safety reasons. They spend.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2538701, ~/Articles/ArticleHandler.aspx, 10/1/2016 4:59:12 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 19 hours ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 4:02 PM
T $40.61 Down -0.12 -0.29%
AT and T CAPS Rating: ****
CLWR.DL $0.00 Down +0.00 +0.00%
Clearwire Corp CAPS Rating: **
DISH $54.78 Down -0.26 -0.47%
DISH Network CAPS Rating: **
LEAP.DL $0.00 Down +0.00 +0.00%
Leap Wireless Inte… CAPS Rating: *
S $6.63 Down -0.03 -0.45%
Sprint CAPS Rating: **
TMUS $46.72 Up +0.26 +0.56%
T-Mobile US CAPS Rating: ***