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Leap Wireless, a disaster waiting to happen

Apr. 09, 2011 10:18 PM ET
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Realist32's Blog
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Ever since Sprint lost to AT&T in its attempts to buy T-Mobile, speculators have been having a field day on who may be acquired next. The company with the largest run so far (and therefore greatest downside) is certainly Leap Wireless (LEAP) jumping from the low 12.14 to 16.36 (an almost 35% increase) on speculation that it will be bought by Sprint among industry consolidation. Despite that fact that a major argument for the acceptance of the merger is that there are still independent competitors in the market (a fact that will be negated if Leap is acquired), LEAP shares have continuously soared.
The question is if such a purchase is likely to happen. Leap is, simply put, a horrible company to invest in as it has been consistently bleeding subscribers and cash, as well as having no solution in sight. The company has even gone to the extent of having a committee formed to explore a possible sale, which is a positive side for the speculators as a hostile takeover would not likely be needed. However the run of in share price brings the question of why would Sprint or any company pay such a premium for such a company? It would make much more sense to purchase say MetroPCS (PCS), a company that only rose from $14.93 to 16.66 (about 11%) but is at least profitable and has what seems to be a solid future. The smaller level of speculation on a MetroPCS purchase may cause Sprint to choose MetroPCS rather than Leap.
If an announcement on a takeover does not come soon, LEAP shares may plummet back to under 11 as that is the only thing holding it up. Being that Sprint’s CEO was only informed about the T-Mobile deal falling through the day before, a deal will probably take awhile if it comes at all. Indeed, the loss of T-Mobile’s independence may in fact help Sprint, as competition for low-paying customers will be less difficult. As such, it seems shaky whether Sprint, or any other company, would want to purchase LEAP at all.

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