Best Hope for Leap Wireless Sale Lies With Frosty Foe

Leap Wireless International Inc. (LEAP), a prepaid wireless provider targeting cost-conscious consumers, wants to sell to a stronger company, but is likely to have a tough time doing so.

The California-based operator has hired Goldman Sachs to help it find a buyer and generate bids. And yet, the rival considered the best fit for a Leap pairing will, in all likelihood, eschew merger attempts, analysts say. MetroPCS Communications Inc. (PCS) is that competitor and the one Wall Street long has believed would, with the addition of Leap, create a formidable presence as the market for prepaid subscribers has mushroomed.

But Leap and MetroPCS have tried to merge before and the attempts failed. Leap dismissed one MetroPCS offer as too low and it’s well known that the companies’ cultures are very different – to the point that executives took potshots at one another in the press without bothering to disguise their contempt.

The question now is whether the providers will try to reconcile because MetroPCS is seen as the sole viable partner for Leap. AT&T Inc.(T), Verizon Communications Inc. (VZ) and Sprint Nextel Corp. (S) all would have to divest too many properties to get regulatory approval for a Leap takeover, analysts told the Wall Street Journal. Plus, cash-squeezed Sprint just bought prepaid operator Virgin Mobile USA and shareholders probably are not inclined to approve another similar deal.

Other factors to keep in mind include wireless standards – Leap operates on the CDMA protocol. And, given the rise in popularity of prepaid services during the economic downturn, many of the large carriers have turned into Leap rivals. Others simply aren’t interested in prepaid end users. Therefore, the big names have little to no interest in buying Leap, despite its 4.5 million customers, analysts contend.

That leaves MetroPCS, which T-Mobile could be trying to purchase, analysts told the Journal. MetroPCS operates in more urban areas than does Leap, and T-Mobile is trying to boost its coverage in major cities.

“Leap better sell themselves quickly to MetroPCS, because if Metro keeps falling then T-Mobile will come in,” Patrick Comack, an analyst at Zachary Investment Research, told the Journal.

Leap shares were down .12 percent to $14.90 a little after 12:30 Eastern on Tuesday; MetroPCS shares had fallen 1.18 percent to $5.86.

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