Leap (LEAP) may have rejected MetroPCS’ (PCS) first bid (4.7B; $69/share), but don’t expect this deal to go away: a merger makes too much sense for the two fledgling wireless carriers. (Both companies sell cheap, pre-paid, all-you-can-eat wireless service aimed at young subscribers and people with bad credit.) Leap’s beef with the offer: It’s too low. LEAP shares are trading around $73.50 today, meaning the bid is a discount to the current share price. MetroPCS will probably raise its bid. More after jump.
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Lehman Brothers’ Brett Feldman and Baird’s William V. Power think MetroPCS will raise its bid, but speed is key: Raymond James analyst Ric Prentiss is concerned that a deal could be difficult to seal before the quiet period begins for the FCC’s upcoming spectrum auction, which both companies could participate in to bulk up their spectrum holdings. Prentiss downgraded Leap to “market perform” on the news.
We agree that the merger makes too much sense to pass up. Both companies have the same business model. Together, they would have about 6 million subscribers and combined wireless spectrum holdings that would cover almost all of the top 200 markets — key assets as they compete with wireless giants like AT&T (T) and Verizon Wireless (VZ, VOD), with about 10 times the subscriber base.