Regional cell phone operator MetroPCS Communications bid Tuesday to buy competitor Leap Wireless International in a deal worth more than $5 billion in stock.
MetroPCS, which went public in April, said in a press release Tuesday that it would offer 2.75 of its shares for each outstanding common share of Leap. This represents a value of $75.05 based on Friday's closing price and is only 3 percent higher than Leap's closing price on Friday.
MetroPCS also said it would refinance $2 billion of Leap's debt as part of the deal.
"We believe that the combination of MetroPCS and Leap is extremely compelling and will create significant value for the stakeholders of both companies," Roger Linquist, CEO of MetroPCS, said in a press release. "The combined company will create a new national wireless carrier with licenses covering nearly all of the top 200 markets in the United States."
MetroPCS and Leap Wireless are close competitors with similar strategies. Unlike the big wireless companies, such as AT&T and Verizon Wireless, MetroPCS and Leap offer unlimited calling plans for flat monthly fees without binding customers to contracts. The companies target individuals who can't get contracts with any of the big carriers because of poor credit and also individuals who don't want to be tied to a contract.
If the deal is accepted and approved, the combined company would become the fifth-largest cell phone operator in the U.S., nearly doubling MetroPCS's customer base. MetroPCS has more than 3.5 million subscribers and Leap has about 2.67 million. The deal would also expand MetroPCS's coverage area in several states, especially in Texas.
A bigger player in the pre-paid/flat rate market could put pressure on the big cell phone operators, such AT&T and Verizon, to offer more flexible services that don't require customers to sign lengthy contracts. But right now it looks like MetroPCS may have to come up with a better offer to entice Leap to accept the deal.