AT&T snaps up Leap Wireless for $1.2B

AT&T Mobility (NYSE:T) will acquire no-contract wireless carrier Leap Wireless (NASDAQ:LEAP) for $1.2 billion, or $15 per share. The deal will give AT&T approximately 5 million prepaid subscribers, a network in 35 states and access to more spectrum. Leap currently has about $2.8 billion in debt. AT&T currently has about 107.3 million subscribers.

AT&T said it will acquire all of Leap's stock and wireless properties, including spectrum licenses, the company's CDMA and LTE network assets, its retail stores and customers. The deal includes spectrum in the PCS and AWS bands covering 137 million POPs.

AT&T plans to use Leap's unused spectrum to expand its LTE network and also provide additional capacity to its existing network. AT&T intends to keep the Cricket brand and offer those prepaid customers access to AT&T's network.

AT&T said Leap shareholders will gain the net proceeds received on the sale of Leap's 700 MHz A Block spectrum in Chicago, which Leap purchased for $204 million in August 2012.

Approximately 29.8 percent of Leap's shareholders have agreed to the transaction. AT&T expects the deal to close in six to nine months. However, it is still subject to review by the FCC and the Department of Justice.

The deal doesn't come as a huge surprise as Leap has been rumored to be looking for a buyer for some time. In addition, a report issued in early June by research firm Pyramid Research named Leap a "likely acquisition target." However, just earlier this week rumors were circulating that T-Mobile US (NYSE:TMUS) or Dish Network (NASDAQ: DISH) were the likely buyers of Leap.

Interestingly, Walter Piecyk, an analyst with BTIG, said in a research note that while AT&T only cites the $1.2 billion of cash it is paying to Leap shareholders, he believes AT&T will also be assuming debt, tower lease obligations and contractual obligations to Sprint and Apple that push the true deal price to more than $5.5 billion. "That is a grossly excessive price to pay for spectrum that is not very complementary to what AT&T already owns and is loaded with Leap's low-end customer base which use a technology that is incompatible with AT&T," Piecyk noted.

Piecyk also noted that while the acquisition of Leap adds more AWS spectrum to AT&T's portfolio, it will exclude key markets like New York, Boston, San Francisco and Atlanta, where AT&T needs the spectrum the most. "AT&T has a much stronger presence in the PCS band but Leap is only in 10 of the top 35 markets in that band and is contiguous with AT&T in six of those markets," Piecyk said.

AT&T isn't as strong in AWS spectrum as its counterparts T-Mobile and Verizon Wireless (NYSE:VZ), which acquired AWS spectrum through its deal with SpectrumCo, the joint venture of cable companies Time Warner, Cox Communications and Bright House.

During the first quarter of 2013, Leap lost 93,000 customers, mostly from its discontinued daily PAYGo product line. In addition, its traditional monthly service had a decline of 9,000 customers.

For more:
- see this press release
- see this Bloomberg article
- see this Reuters article

Related articles:
Report: T-Mobile or Dish increasingly likely to swallow Leap Wireless
If he can't buy Sprint, what is Ergen's plan B? (And C and D?)
Report: U.S. LTE subscribers will make up 70% of connections by 2017
Leap suggests its LTE roaming deal is with Sprint, hints at more device financing options

Updated on July 15 to provide additional commentary.

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