Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.

MetroPCS Takes a Flying Leap

Dispelling the rumor that nobody works on Labor Day, regional wireless service provider and recent IPO MetroPCS (NYSE: PCS  ) was a little busy over the holiday, crafting an unsolicited $5.5 billion offer for fellow regional player Leap Wireless (Nasdaq: LEAP  ) . The all-stock deal offers Leap shareholders 2.75 MetroPCS shares for each share of Leap they hold.

News of the deal put some extra bounce in Leap's shares, which rose 15% on Tuesday to $83.47. That's nearly 6% greater than the value of the stock offer, based on MetroPCS' closing price. While some observers have long expected a merger between the two regional players, many see this initial offer as too low, and they're expecting the price to be sweetened -- hence the premium on Leap's shares. Leap Wireless did not offer any initial comments on the proposal as it reviews the deal.

With market saturation driving increased competition from cellular giants AT&T (NYSE: T  ) , Sprint Nextel (NYSE: S  ) , and Verizon Wireless -- a joint venture between Verizon Communications (NYSE: VZ  ) and Vodafone (NYSE: VOD  ) -- a combination between MetroPCS and Leap seemed almost inevitable. Both have been growing faster than their nationwide competitors, thanks to attractive unlimited-use plans that customers sign up for on a prepaid basis.

But the success of Leap and MetroPCS has also incited a little envy from the major wireless carriers, leading some of them (Sprint Nextel, in particular) to dip their toes in the waters of unlimited service plans. Other, smaller carriers and mobile virtual network operators such as Disney Mobile and Virgin Mobile USA offer a variety of unlimited plans as well. But the unbounded use only applies on the home network -- roaming is not included.

The roaming limitation is a major disadvantage for regional players, one the nationwide carriers exploit. However, if MetroPCS and Leap do end up combining their networks, the new entity will cover nearly all of the top 200 markets in the U.S., positioning the company much closer to the nationwide players.

While the offer adds a little excitement to the market coming out of the slow summer, I agree that this is not likely to be the final offer. Leap will likely ask for a higher price that better values its 2.7 million subscribers. If a deal does eventually happen, though, the U.S. wireless market will get a lot more interesting, courtesy of a new, feisty competitor.

For more Foolishness:

Read/Post Comments (0) | 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.

Be the first one to comment on this article.

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: 536262, ~/Articles/ArticleHandler.aspx, 3/28/2015 10:48:38 AM

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...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!