Leap's Best Chance (LEAP, PCS, S, T, VZ)

Leap Wireless International Inc. (NASDAQ: LEAP) was up huge late in the trading on Monday.  In fact, it posted double-digit percentage gains on late-day that it had hired Goldman Sachs and Morgan Stanley to go find a buyer or a better strategic alternative that a go-it-alone prepaid wireless or no-contract wireless carrier.  Shares are giving back some of those gains this morning.  Shares closed at $14.92 yesterday and we have a morning high so far of $14.60 with shares now at $14.42 on 1.67 million shares as of 10:14 AM EST.  What seems to be happening is that traders and investors are probably remembering a long rivalry with MetroPCS Communications Inc. (NYSE: PCS)… and an old merger which went absolutely nowhere.

MetroPCS is at $5.88 today, and its 52-week trading range is $5.52 to $18.98 and a market cap of $2.09 billion.  Leap Wireless has a 52-week range of $11.98 to $42.47 and a market cap of 1.13 billion.

In the world of pre-paid and no-contract wireless carriers, maybe the companies should consider the Highlander jargon, “There can be only one!”…. Sprint Nextel Corp. (NYSE: S) bought Virgin Mobile in a deal that closed last November in a $483 million deal.  One issue that both Leap and MetroPCS face is the market cap issue.  Then there is an antitrust issue because almost any deal that the other two bells of AT&T Inc. (NYSE: T) and Verizon Communications (NYSE: VZ) will face what are likely long reviews and need concessions.  The major carriers are now in a price war as well over the smartphone wars.

Leap’s best candidate is MetroPCS.  MetroPCS’s best candidate is Leap.  This could even be accomplished in an all-stock deal so that shareholders can keep skin in the game rather than be forced out in a cash deal into a forced share loss on the merger.  That sort of merger may face a significant legal fight, while a stock deal still leaves the old upside if the combined company can succeed in the months and years ahead.  These companies probably do not even have to sell the merger to their shareholders based upon great returns, great synergies, and great leverage.  They can probably sell it based upon need and survival for the future.

As with all such reports, until something is finalized these should be considered rumors until further notice.

Jon C. Ogg