Leap (LEAP), MetroPCS (PCS) Stronger; AT&T (T) Might Make Bid - Analyst
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Price: $6.03 -0.66%
Rating Summary:
6 Buy, 14 Hold, 8 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 0 | Down: 2 | New: 2
Rating Summary:
6 Buy, 14 Hold, 8 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 0 | Down: 2 | New: 2
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Leap Wireless (Nasdaq: LEAP) and MetroPCS (NYSE: PCS) are trading higher Thursday, following a note out of JPMorgan highlighting how the duo might become a takeover target for AT&T (NYSE: T).
Wonder where they got that idea? Guess we'll never know.
According to JPMorgan, as well as AT&T itself, AT&T is looking to pick up more spectrum now that its proposed buyout of T-Mobile from Deutsche Telekom is over.
Though some have speculated that AT&T might focus on acquiring Clearwire (Nasdaq: CLWR) or DISH Network (Nasdaq: DISH), others believe that MetroPCS or Leap would provide an easier time passing muster with U.S. antitrust regulators. JPMorgan noted, however, "While most industry analysts consider LEAP/PCS themselves short of spectrum, we keep in mind that their customers churn at ~50 percent/year and handsets ~100 percent/year, and believe that an acquirer would be able to generate significant cash flow by running the customer base off and putting their spectrum to use within a year."
Should AT&T simply want the customer base, opting for the business itself, an acquisition would allow AT&T to slash costs, and generate cash while running off the sub base over roughly 2 years. The firm said, "Taking the first-quarter of 2012 as a starting point, and turning off the subscriber acquisition engine, it takes roughly 2 years to run the EBITDA-Capex line to zero. At that point a potential acquirer could turn off the network and offer the remaining customers (~1/3rd of initial sub base) an upgrade to the acquirer’s network or get turned off."
On spectrum, JPMorgan put a value of $1.9 billion on Leap, and $2.6 billion for MetroPCS's assets.
JPMorgan also tosses up some numbers:
At $13 per share, that's a 55 percent premium to the trading price for Leap, while MetroPCS could be gotten for a 27 percent discount. The combined market cap of the two companies is also about $3.3 billion currently, or 89 percent less than what AT&T was willing to put up for T-Mobile.
In early Thursday afternoon trading, Leap is up 3 percent, MetroPCS is 2.1 percent better, and AT&T is just 0.5 percent into positive territory.
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Wonder where they got that idea? Guess we'll never know.
According to JPMorgan, as well as AT&T itself, AT&T is looking to pick up more spectrum now that its proposed buyout of T-Mobile from Deutsche Telekom is over.
Though some have speculated that AT&T might focus on acquiring Clearwire (Nasdaq: CLWR) or DISH Network (Nasdaq: DISH), others believe that MetroPCS or Leap would provide an easier time passing muster with U.S. antitrust regulators. JPMorgan noted, however, "While most industry analysts consider LEAP/PCS themselves short of spectrum, we keep in mind that their customers churn at ~50 percent/year and handsets ~100 percent/year, and believe that an acquirer would be able to generate significant cash flow by running the customer base off and putting their spectrum to use within a year."
Should AT&T simply want the customer base, opting for the business itself, an acquisition would allow AT&T to slash costs, and generate cash while running off the sub base over roughly 2 years. The firm said, "Taking the first-quarter of 2012 as a starting point, and turning off the subscriber acquisition engine, it takes roughly 2 years to run the EBITDA-Capex line to zero. At that point a potential acquirer could turn off the network and offer the remaining customers (~1/3rd of initial sub base) an upgrade to the acquirer’s network or get turned off."
On spectrum, JPMorgan put a value of $1.9 billion on Leap, and $2.6 billion for MetroPCS's assets.
JPMorgan also tosses up some numbers:
- Leap has $760 million in cash, with an additional $100 million from the Verizon (NYSE: VZ) sale/swap, and debt of $3.2 billion. implied cash generation of $1.4 billion over the next 2 years and the spectrum value of $1.9 billion gives Leap a value of $13 per share.
- MetroPCS should have about $1.8 billion in cash, $4.7 billion in debt through 2011. About $2.5 billion of cash flow will come from spectrum deals, and, again, JPMorgan is modeling for MetroPCS's spectrum assets to have a current value of $2.6 billion. This leads to a per share value of about $6.
At $13 per share, that's a 55 percent premium to the trading price for Leap, while MetroPCS could be gotten for a 27 percent discount. The combined market cap of the two companies is also about $3.3 billion currently, or 89 percent less than what AT&T was willing to put up for T-Mobile.
In early Thursday afternoon trading, Leap is up 3 percent, MetroPCS is 2.1 percent better, and AT&T is just 0.5 percent into positive territory.
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