Leap’s Poor Results Fuel Discussions Over Potential Sale

The second quarter was a brutal one for Leap Wireless International Inc., reigniting speculation that the prepaid wireless phone company might sell itself.

After missing analysts’ expectations for a quarter during which its customer base shrank (289,000 customer losses), Leap Chief Executive Doug Hutcheson noted the company is “continuing to review alternatives to drive additional cash flow and value from our assets.”

That remark, coupled with the dreary results and other comments during a call earlier this week with financial analysts, has outsiders wondering whether Leap will be sold.

Helix Investment Management, an investment management and advisory firm, wrote in a column for Seeking Alpha that any deal would involve Leap’s spectrum, which the prepaid carrier’s CFO thinks has a market value of nearly $3 billion.

Leap, though, likely wouldn’t be sitting in the driver’s seat should it pursue a sale. Walter Piecyk of BTIG Research wrote that its “assets are not in critical markets and vulture buyers are aware of their declining cash balance.”

Who are the potential purchasers? AT&T, Sprint and Verizon Wireless, according to Helix Investment Management. Both AT&T and Sprint reportedly have expressed interest in acquiring prepaid carriers. AT&T, Reuters reported in May, held talks to acquire Leap. CNBC reported earlier this year that Sprint was “hours away” from announcing an agreement to acquire Leap’s peer MetroPCS in a deal worth $8 billion before Sprint’s board decided to pull the plug. A large mobile virtual network operator like America Movil’s TracFone also might be interested, according to Piecyk.

In the second quarter, Leap posted a wider loss (54 cents) than estimates of 51 cents and fell short ($786.77 million) of estimated revenues ($837 million), Helix Investment Management wrote.

“Short of a major turnaround, a sell-off to a larger player could be in the offing  a scenario Leap management said was one of the options it should consider,” noted Yankee Group principal analyst Rich Karpinski in a prepared remark.

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