[qi:83] In the wireless world, small is not beautiful. MetroPCS (PCS), a Dallas-based wireless operator, has learned this lesson quickly and is now proposing a tax-free stock-for-stock merger with Leap Wireless (LEAP). The proposal says Leap shareholders would get 2.75 PCS shares for each share, and thus values Leap at $5.3 billion.
The MetroPCS management in the press release noted that the terms they are offering are fair, because since their IPO in April of this year, “Leap’s stock price has traded in part in anticipation of a merger between the two companies.” MetroPCS went public recently and raised a billion dollars.
Given their spectrum overlap and market positioning, the deal makes sense, as the companies compete with larger, deep pocketed players such as AT&T (T) and Verizon Wireless, a joint venture of Verizon (VZ) and Vodafone. Folks at UBS Research say that the
“combined company would own licenses covering nearly all the top 200 markets in the US providing significant scale…. the opportunity cost saving from not having to build out in overlapping markets could also be significant.”
Metro PCS is one of the companies — thanks to its focus on sub prime customers — that is at extreme risk if the current housing and credit crisis starts to spread. The two companies have enough spectrum for advanced wireless services and if they can bulk-up, can emerge as the fifth national carrier to challenge the big four. There is going to be further consolidation in the smaller wireless carrier space, and MetroPCS along with the recently-private AllTel could become the consolidators.