Telco M&A May Amazingly Continue After Leap Wireless, AT&T Deal
Updated from 9:22 a.m. ET with Paulson & Co. comment and opening share prices.
NEW YORK (TheStreet) -- There are many companies left for telecom giants to fight over amid a frenzy of merger and acquisition battles as carriers look to scale their wireless networks and improve smartphone wireless service.
On Friday, AT&T
"Perfect fit for AT&T. They get valuable spectrum and 5 million customers," Paulson & Co, a top Leap shareholder, said in an e-mailed statement. "Good outcome for Leap shareholders," the $18 billion hedge fund added.
Paulson & Co. holds nearly 10% of Leap's outstanding shares, according to Securities and Exchange Commission filings, after taking a large position in the first half of 2012. Other large investors include Magnetar, Blackstone
Leap Wireless's largest shareholder MHR Fund Management is supporting the company's acquisition by AT&T, however, analysts and investors are speculating there could be a bidding war.
In a Friday press release, Leap Wireless said 29.8% of its outstanding shares have entered into an agreement to vote in favor of the transaction. Gregory Lund, a Leap Wireless spokesperson, confirmed those votes only relate to MHR's stake.
While the merger is just the latest in a frenetic two years of consolidation in the industry, initiated by AT&T, there are likely more deals yet to come.
Meanwhile some telecom industry analysts believe AT&T faces the prospect of a bidding war for Leap Wireless given the value of the company's spectrum assets to carriers such as Verizon Wireless
Verizon could make a counter-bid to AT&T's deal, given forecasts the company could fall behind its primary competitor in wireless spectrum per million subscribers, according to Citigroup analyst Michael Rollins. According to Rollins, AT&T will have spectrum of 1.1 megahertz (MHz) per million subscribers and 1.7 million MHz per million post-paid subscribers, ahead of Verizon Wireless.
Burgeoning players in the U.S. wireless market could also take a look at trying to eclipse AT&T. Charlie Ergen-chaired Dish Network could look at Leap Wireless's pre-paid customer network as the asset the satellite TV giant needs to finally enter the wireless market, according to Rollins.
T-Mobile may have been involved in a private bidding war with AT&T for Leap Wireless, according to Oppenheimer analyst Timothy Horan.
Some see AT&T's deal as poetic justice. "
Bidding wars have been a key part of T-Mobile, Sprint
After Dish Network pursued both Sprint and Clearwire, analysts now speculate the company may pin its wireless industry strategy on a merger with T-Mobile. Given Dish's lack of wireless customers and its valuable spectrum, analysts had also consider the company a natural fit for AT&T.
Sprint and T-Mobile, meanwhile, may eventually look to merger with T-Mobile according to Citigroup's Rollins. The analyst also points out Telephone & Data Systems
For now, AT&T will acquire Leap Wireless's Cricket brand name and about 5 million subscribers on the company's CDMA network, according to the terms of Friday's merger agreement.
"Cricket's employees, operations and distribution will jump start AT&T's expansion into the highly competitive prepaid segment," AT&T said in a statement. Cricket customers may benefit from accessing AT&T's recently upgraded network, the company added.
The telco giant will also acquire valuable 4G LTE and AWS spectrum, in a move that helps to fulfill its network expansion efforts. AT&T will divest Leap Wireless's Chicago-based spectrum licenses, which it acquired from Verizon in 2008.
In a sense, AT&T's move for Leap Wireless takes the carrier full circle on its wireless acquisition plans.