JSI Capital Advisors - The Monitor

AT&T Inc. (NYSE: T) announced its acquisition of Leap Wireless International, Inc. (NASDAQ: LEAP) on Friday, July 12^th. The acquisition should help AT&T begin serving the low-cost prepaid wireless customer market.

Valuation Analysis and Deal Metrics

Transaction Facts

AT&T will acquire Leap for approximately $15.00 per share in cash.
Acquisition will provide AT&T with all of Leap’s stock and wireless properties, which includes all licenses, network assets, retail stores, and subscribers.
The equity value of the acquisition is approximately $1.19 billion, plus long-term debt net of excess cash of $3.3 billion, which gives the transaction an enterprise value of approximately $4.5 billion.

Strategic Considerations

Acquisition includes spectrum in the PCS and AWS bands, which covers approximately 137 million people and should be complementary with the existing spectrum licenses that AT&T controls.
Currently, Leap operates under the Cricket brand, which will allow AT&T to expand into the prepaid wireless market segment.

JSICA’s Take

The multiples of the AT&T-Leap transaction seem to be in-line with wireless industry deals over the period from the middle of 2009 through January 2013.
The transaction should allow AT&T a low-cost prepaid alternative to better compete with wireless carriers such as T-Mobile.