UPDATE: MetroPCS Proposes Stock-Swap Buy Of Leap

NEW YORK -(Dow Jones)- MetroPCS Communications has proposed to acquire fellow wireless service provider Leap Wireless International in a stock-swap deal worth $5.27 billion.

A combination would bring together two niche players that mainly deal with customers with shaky credit and create the framework for another national wireless provider. Both companies differentiate themselves by charging a flat rate upfront and requiring no long-term contracts or credit checks.

The offer is the latest in a series of attempts between the two to merge. Industry observers have long said that the companies are complementary - MetroPCS operates in the metropolitan markets while Leap serves the rural areas. The companies have only two overlapping markets.

"We've had an opportunity over the years to review this kind of transaction," Roger Linquist, chairman and chief executive of MetroPCS, told Dow Jones Newswires on Tuesday. "We think it's compelling. Delaying serves no purpose."

Leap has acknowledged the offer. "Leap is reviewing the letter sent today by MetroPCS. Beyond that, we don't have any comment," said spokesman Gregory Lund.

Under the terms of the deal, Leap shareholders would get 2.75 shares of MetroPCS for each share of Leap, valuing the stock at $75.05 each. That is a 3.5% premium to Friday's closing price. MetroPCS would also assume about $2 billion in Leap debt.

Leap shares rose 15.7% to $83.89, and MetroPCS advanced 4.1% to $28.39.

Some are skeptical a deal will be struck at present terms. "I don't think Leap will accept these terms," said Todd Rosenbluth, an analyst at Standard & Poor's. He noted that a merger between the two has been long favored by Wall Street.

If Leap agrees, MetroPCS shareholders would own 65% of the combined company. MetroPCS believes a combination would net $2.5 billion in merger cost savings. Besides cost savings from eliminating duplicative jobs, MetroPCS believes a merger would result in higher combined market share than with the two companies remaining independent.

"There's an opportunity for increased penetration and retention," Linquist said. He added the combined company could grow to two and a half times MetroPCS's current size.

A deal, however, wouldn't alleviate concerns some have about MetroPCS and Leap. Both companies deal with a customer base that is budget-conscious, and the economy has been showing signs of slower growth.

"The concerns we've had for Leap - how they would grow and maintain customer loyalty in this economic environment - doesn't change," Rosenbluth said. "Can this be alleviated by scale? Possibly."

The combined company would better face competition from Sprint Nextel Corp. (S), which recently launched a similar service called Boost Unlimited. Sprint Chief Financial Officer Paul Saleh said following the last quarterly report in August that the service was doing well.

Linquist, however, said Sprint has yet to be a factor in its business. "There is virtually no impact on our business," he said. "We think that this merger transcends any other discussion."

MetroPCS competes with all of the major players because of its exposure to the major markets. Linquist said that MetroPCS has 3.5 million subscribers, while Leap has 1.7 million. "We feel we're the dominant player," he said of MetroPCS's size advantage over Leap.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(Kevin Kingsbury contributed to this report.)

(END) Dow Jones Newswires

Posted to the site on 5th September 2007