Pentwater Capital Management, which claims to be the fifth-largest institutional investor in Leap Wireless (NASDAQ:LEAP) with 5 percent of shares, sharply criticized the company's management and said it will nominate three new directors to Leap's board to shake up the company.
In a letter to investors, Pentwater laid out a list of missteps Leap's management team has made since 2007, starting with Leap's rejection of a merger offer with rival flat-rate carrier MetroPCS (NYSE:PCS). The firm also criticized Leap for focusing on its Cricket mobile broadband service, for being slower than its competitors to adopt all-inclusive prepaid pricing (which it did in August), and for mismanaging its handset inventory and its cost structure.
Pentwater specifically singled out Leap's decision in September to adopt a new tax strategy that many observers said would help it avoid a takeover bid. Pentwater said this "poison pill to limit individual shareholder ownership to less than 5 percent of Leap's outstanding shares entrenches management and stifles shareholder voice."
"Leap respects the rights of shareholders to nominate director candidates; however, we strongly disagree with many of the assertions contained in Pentwater's letter," the company said in a statement. "Leap has a highly-qualified board that was strengthened in November 2009 with the addition of three new, independent directors who brought significant additional experience and strong operating and strategic perspectives to the board. The board is committed to acting in the best interests of all shareholders."
Leap took several steps in the second half of last tear to try and improve its performance. The company streamlined its rate plans, added tiered data offerings for its mobile broadband service, vowed to launch new smartphones and struck a national roaming deal with Sprint Nextel (NYSE:S). The carrier also recently announced plans to shift focus away from its mobile broadband offerings.
Leap released its fourth-quarter results last month, showing a widening net loss but improving customer metrics, results the carrier said indicate it is improving and strengthening its business after a rough few quarters. In its statement, Leap noted that in the fourth quarter churn fell to the lowest level in nearly ten years and average revenue per user improved significantly.
For more:
- see this Reuters article
- see this WSJ article (sub. req.)
- see this Leap release
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