Sprint could acquire Leap, and Palm M&A talk resurfaces
Published: 4 February, 2010
The US wireless market is full of merger speculation again, with Leap Wireless exploring acquisition options and Palm once again rumored to be a takeover target.
Leap Wireless has explored merger opportunities, mainly with fellow flat rate carrier MetroPCS, several times before. Now it has hired outside advisers and formed a special committee of its board to consider different strategic options, including sale or merger, according to The Wall Street Journal. The report says Goldman Sachs has been hired to advise the company while it "reassesses its alternatives and checks its options out there right now".
Shares in Sprint Nextel rose on the prospect of carrier consolidation, on hopes it would benefit from a Leap takeover, or even make the bid itself. Leap appears to be ready to strike a deal, but its suitor remains a mystery, with MetroPCS stating it is not interested this time around. This has focused attention on Sprint, which has become increasingly reliant on the prepaid market where Leap specializes, and which acquired MVNO Virgin Mobile USA last year to improve its position.
Craig Moffett, an analyst at Sanford Bernstein, told Dow Jones newswires Sprint purchasing Leap would be the "lesser of all evils". He added: "Ordinarily, speculation on being a buyer depresses stock, but this could be a case where Sprint being considered as an acquirer really would be a step in the direction of consolidation and be meaningfully positive for investors."
Sprint's shares closed up 9.6% yesterday at $3.66 on heavy volume. Over the past 12 months, shares have climbed 52%.
Meanwhile, comments from analyst Jonathan Goldberg of Deutsche Bank sparked off yet another round of takeover speculation around Palm. In a research note to clients, Goldberg lifted his price target to $20 from $19, citing likely acquisition interest.
Late last year, Nokia was rumored to be interested in Palm, though it is hard to see why - the Finnish giant generally steers clear of major takeovers in established businesses, and is making progress in smartphones and the US market without the marginal help Palm would bring.
Goldberg sees the smaller firm's webOS Linux-based operating system as the main attraction for buyers, calling it a "scarce resource" that could drive value by attracting a large base of developers. Somewhat incredibly, he speculated that webOS could overtake RIM BlackBerry and even Google Android by the end of the year in terms of apps availability. It currently has 1,300 apps.
"We think Palm has created a valuable asset in its webOS. If they can grow their installed base of users and keep the carrier momentum going, this value should become more apparent," Goldberg wrote. He also thinks Palm could sell over 600,000 units of its updated Pre and Pixi phones to Verizon this quarter.