Metro offers $5.3bn for Leap Wireless
MetroPCS, which sells pre-paid wireless plans to young and low-income customers, on Tuesday offered a $5.3bn stock-for-stock merger with Leap Wireless, its close rival, in a deal that would form the fifth biggest national wireless carrier in the US.
The proposed merger comes as both operators are struggling to grow in a sector that may be adversely affected by the subprime mortgage crisis, as poorer Americans find themselves with less cash to spare.
Metro is offering 2.75 shares for each outstanding share of Leap’s common stock, valuing the bid at $75.04 per share, or $5.3bn, based on the companies’ closing share prices on Friday.Metro said it expected the merger to create synergies of about $2.5bn.
Metro shares hit a 52-week low of $23.25 last month on investor concerns that problems in the housing market would affect demand for its services. The customers it targets are most likely to be squeezed by higher payments on home loans if the mortgage market worsens.
Reporting its second-quarter results last month, Metro said it had added 155,000 new customers during the quarter, bringing its total to 3.5m. That was well below Wall Street expectations of up to 238,000 new clients.
Nevertheless, UBS last month recommended investors buy Metro shares, noting that the company’s management said it has not yet seen any negative impact from the subprime mortgage crisis. Analysts at the investment bank also said they expected a spike in new customers in the fourth quarter, when MetroPCS starts selling in Los Angeles.
Leap, which went public in April, has also struggled. Last month the mobile phone service provider reported a 57 per cent fall in profit for the second quarter, lower average revenue per user and an increase in cancellations to 4.3 per cent from 3.6 per cent last year. It added 127,000, new customers in the last quarter, while Wall Street had been looking for 160,000. Several analysts lowered their ratings on Leap stock in the wake of the results.
Leap was not immediately available for comment.
The markets welcomed the proposed merger, with MetroPCS shares rising 5.5 per cent to $28.80 on the news in early morning trading on Tuesday, while Leap stock jumped 13 per cent to $81.90.