Leap Wireless International, Inc. (LEAP) Could Have Further Upside

Shares of Leap Wireless International, Inc. (NASDAQ:LEAP) rallied well over 100% in after-hours trading on Friday. U.S. wireless giant AT&T Inc. (NYSE:T) has offered to acquire the company for $15 per share — Leap stock closed Friday at $7.98.

AT&T Inc. (T)But is there more upside in the name? Perhaps. Shares of Leap Wireless International, Inc. (NASDAQ:LEAP) broke above AT&T’s $15 offer, to trade near $17.30. Clearly, some investors are expecting AT&T Inc. (NYSE:T) to sweeten the deal.

Recent history suggests a better offer

In just the last year, investors in the space have seen a number of major deals — and if those are any indication, AT&T’s $15 bid might not be its final offer.

Take T MOBILE US INC (NYSE:TMUS)’s efforts to acquire MetroPCS Communications Inc (NYSE:PCS). After some big shareholders (like Paulson & Co) threatened to oppose the deal, T-Mobile was forced to sweeten the offer. MetroPCS Communications Inc (NYSE:PCS) shareholders ultimately received the same amount of cash and stock as before, but the new combined entity carried $3.8 billion less debt.

Shares of that entity, T MOBILE US INC (NYSE:TMUS) US, have performed spectacularly since the merger — up over 50% since it began trading in early May.

Then there’s Sprint Nextel Corporation (NYSE:S) and Clearwire Corporation (NASDAQ:CLWR). Japan’s SoftBank was set to acquire some 70% of the company, and Sprint Nextel Corporation (NYSE:S) itself was going to buy the rest of Clearwire that it didn’t already own.

But that was before DISH Network Corp. (NASDAQ:DISH) got involved. The satellite TV company has been buying up spectrum and spectrum related-assets since 2008 (it has paid about $3 billion for these assets over the years).

DISH Network Corp. (NASDAQ:DISH) tried to buy both Sprint and Clearwire Corporation (NASDAQ:CLWR) to put its spectrum to work. DISH didn’t succeed, but Sprint Nextel Corporation (NYSE:S) and Clearwire shareholders should be happy the company got involved. Sprint’s initial bid for Clearwire Corporation (NASDAQ:CLWR) was only $2.90 — it was forced to raise that offer to $5 after DISH submitted a series of rival bids.

SoftBank, too, was forced to make its Sprint Nextel Corporation (NYSE:S) offer more attractive — raising the bid from $7.30 per share to $7.65.

What’s Leap worth?

AT&T Inc. (NYSE:T) is likely buying Leap Wireless International, Inc. (NASDAQ:LEAP) for its spectrum. Last November, Leap’s CEO Doug Hutcheson admitted that the company wasn’t using 60% of it, and was interested in deals to share spectrum.

By acquiring Leap Wireless International, Inc. (NASDAQ:LEAP), AT&T will control that spectrum, and will probably use it to bolster its expansive network. AT&T has over 100 million subscribers — Leap has only 5.3 million.

Combined, an AT&T Inc. (NYSE:T)/Leap Wireless International, Inc. (NASDAQ:LEAP) entity will still be smaller than Verizon Communications Inc. (NYSE:VZ), which has more than 110 million subscribers. Still, it should allow AT&T to strengthen its network, which still lags behind Verizon Communications Inc. (NYSE:VZ)’s in terms of LTE coverage.

The question is how valuable is Leap’s spectrum? The company’s CEO has claimed its spectrum assets alone are worth $3 billion — even though Leap Wireless International, Inc. (NASDAQ:LEAP)’s market cap has traded below $1 billion since 2011.

AT&T Inc. (NYSE:T)’s offer only values the company at $1.2 billion.

A bidding war for Leap Wireless?

But, like the Sprint deal, could DISH start another bidding war? Analysts at Macquarie predicted that Leap would be acquired last week, however, they weren’t expecting AT&T to be the buyer.

Rather, Macquarie was expecting a bid from DISH Network Corp. (NASDAQ:DISH) or T MOBILE US INC (NYSE:TMUS). With DISH Network’s Sprint Nextel Corporation (NYSE:S)/Clearwire Corporation (NASDAQ:CLWR) ambitions falling through, a bid for Leap Wireless International, Inc. (NASDAQ:LEAP) might make sense; likewise, T-Mobile would benefit from owning Leap — and with its rallying stock, could do it with a stock-for-stock deal.

Or, perhaps DISH would make a play for T MOBILE US INC (NYSE:TMUS)? It was rumored after the Sprint deal fell through, and T-Mobile head John Legere told CNet he was “intrigued” by DISH’s vision and was open to a combination.

More money to be made in the wireless business

AT&T Inc. (NYSE:T)’s bid for Leap Wireless International, Inc. (NASDAQ:LEAP) may be attractive based on its market valuation, but if recent deals are any indication, the wireless giant may be forced to sweeten the offer.

T MOBILE US INC (NYSE:TMUS), too, has been a great performer in just the last two months, but the nation’s fourth-biggest carrier might have further upside. A potential deal with DISH Network Corp. (NASDAQ:DISH) looms as a possibility.

At any rate, the consolidation in the wireless industry appears to be far from over.

Joe Kurtz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Leap Wireless Could Have Further Upside originally appeared on Fool.com.

Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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