iNVEZZ.com, Monday, July 15: AT&T Inc (NYSE:T), the second-biggest mobile operator in the US, has agreed to buy Leap Wireless International Inc for $1.2 billion in cash, aiming to add more airwave assets and boost its share of the prepaid market. AT&T has offered $15 per share for the San Diego-based prepaid mobile carrier, which is an 88-percent premium over Leap’s closing price of $7.98 on Friday, July 12. The Leap share price more than doubled in Friday’s after-hours trading, rising as high as $17.78. The AT&T share price closed at $35.81, down 0.17 percent, on Friday.
Hunting for Airwaves
Under the terms of the agreement, AT&T would acquire all of Leap’s stock and mobile properties including licences, network assets, retail stores and approximately five million subscribers, Leap said in a statement on its website on July 12. Leap shareholders would also receive a contingent right entitling them to the net proceeds from the sale of the company’s 700 Mhz airwares spectrum in Chicago. Leap bought the spectrum for $204 million in August 2012.
AT&T Chief Executive Officer Randall Stephenson has been hunting for spectrum ever since regulators blocked the company’s attempt to buy Deutsche Telekom AG’s T-Mobile USA unit for $39 billion in 2011. The US government stopped the deal partly due to concerns that it would reduce the number of mobile carriers competing in some markets. Stephenson since then has focused on smaller transactions such as the $1.9 billion deal in January to acquire airwaves from Verizon Wireless.
“This is another example of the escalating value of spectrum as data pricing gets more competitive and data devices like tablets become more ubiquitous,” said Kevin Smithen, an analyst with Macquarie Securities USA Inc, as quoted by Bloomberg.
Last week, the third largest US mobile operator Sprint Nextel Corp completed the acquisition of Clearwire Corp, a US Internet provider mainly sought after because of the valuable airwaves spectrum it owns. Sprint itself was acquired last week by Japan’s third biggest mobile carrier SoftBank Corp as part of the Japanese company’s plans for US expansion. According to some analysts, following the acquisition,
Clearwire and Sprint combined have more spectrum than AT&T and Verizon Wireless, meaning that SoftBank will have a better chance to compete against the two leading carriers in the US.
AT&T has pledged to continue developing and expanding Leap’s Cricket brand, under which Leap has provided mobile services. The company has been focused on the prepaid market, which allowed it to grow rapidly at first but the company’s growth stalled later and Leap has posted losses every year since 2005. Its sales are forecast to drop by six percent in 2013.
“This not only improves our spectrum position, it advances our offerings in prepaid service,” said Brad Burns, a spokesman for Dallas-based AT&T, as quoted by Bloomberg. “We’ll make the prepaid market more competitive. Leap’s customers will be able to ride on our fast LTE network.”
The AT&T share price closed at $35.81 in New York on 12.07.2013