MetroPCS Makes Offer to Acquire Leap Wireless International for 4.64 Times Revenue

Weekly Corporate Growth Report, Sep 10, 2007

The Deal: MetroPCS has made an offer to purchase Leap Wireless International Inc. in a stock deal valued at about $5.27 billion. Under the terms of the offer, each share of Leap Wireless would be exchanged for 2.75 shares of MetroPCS. Based on recent closing prices, the deal values Leap at $75.05 per share, a premium of 3.5 percent over Leap's share price prior to the MetroPCS announcement. MetroPCS would also assume about $2 billion in Leap debt. If the deal is successfully completed, current MetroPCS shareholders would own 65 percent of the combined company.

Discussion: Leap Wireless International provides wireless phone services to customers in more than 50 markets in 22 states. The company's Cricket Communications unit offers unlimited flat-rate calling. Cricket has recently introduced a new prepaid roaming option. Leap also purchased 99 advanced wireless service licenses at a 2006 FCC auction.

MetroPCS is a wireless phone service provider. The company offers unlimited calls for a flat rate, which customers pay in advance. The company also differentiates itself from other service providers by not requiring long term contracts. MetroPCS became a publicly traded company in April 2007.

MetroPCS stated that the deal would give the combined companies a higher market share then the companies would have as competitors. MetroPCS also said the deal could create $2.5 billion in operating synergies.