Why Leap Wireless Shares Popped
Nov 19th 2012 5:33PM
Updated Nov 19th 2012 5:36PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of the No. 6 wireless provider in the U.S., Leap Wireless (NAS: LEAP) , jumped as much as 11% after reports came out that it and MetroPCS Communications (NYS: PCS) held talks in a possible three-way merger with Deutsche Telekom's T-Mobile.
So what: According to reports and an SEC filing, MetroPCS, which announced a deal with T-Mobile just weeks earlier, disclosed that it had been in discussions with a third-party business. A person familiar with the situation identified Leap Wireless as that nameless third-party business.
Now what: Prepaid-wireless companies like MetroPCS and Leap have been losing customers hand-over-fist for the past couple of quarters. A move to 4G LTE networks and into more affordable smartphones has given those with poor credit or low incomes access to a greater variety of phones on an increasing number of providers. Unsurprisingly, Leap lost 269,000 subscribers last quarter and has fallen far behind its peers in terms of building out its 4G LTE network. A merger seems like the smartest move for Leap, however, it seems unlikely that shareholders could expect much of a premium if one were to occur simply given how little Leap can now bring to the table. To me, this seems like a situation worth avoiding altogether.
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