The Goliath vs. David deal will probably benefit long-suffering Leap Wireless International, Inc. (NASDAQ:LEAP) investors. The stock price had been on a downward spiral until a reversal occurred on news of the potential acquisition. While the company has been signing up new subscribers, and revenue is growing, it isn’t profitable. That could change once AT&T Inc. (NYSE:T) comes into the picture.
Will the transaction, worth $1.2 billion in cash, also help AT&T? It has the potential to work out for two reasons (*):
1. AT&T Inc. (NYSE:T) needs more capacity in order to expand its mobile unit. Leap happens to own a healthy slice of the available wireless spectrum that AT&T needs for its 4G LTE technology.
2. The fastest growing segment of wireless is in pre-paid plans, and Leap Wireless International, Inc. (NASDAQ:LEAP) is a big player in that area.
(*) A caveat of the deal is that AT&T Inc. (NYSE:T) will need to assume Leap’s $2.8 billion in debt.
Sprint Nextel Corporation (NYSE:S) to the finish
Another transaction in wireless just wrapped up. The number three U.S. carrier, the newly reminted Sprint Nextel Corporation (NYSE:S), merged with the number three Japanese wireless provider, SoftBank. Nextel is gone from the Sprint corporate name now.
The deal will provide a much needed $5 billion cash infusion for Sprint Nextel Corporation (NYSE:S) to stabilize its balance sheet, and it also enriches shareholders to the tune of $16.5 billion. Not a bad payday all around. Expect Sprint to show signs of life when it doesn’t have to service as much debt as it had before.
Sunset on the Verizon
The merger will allow Sprint Nextel Corporation (NYSE:S) to become more competitive with AT&T and the nation’s top wireless company, Verizon Wireless, a joint venture of Verizon Communications Inc. (NYSE:VZ) and Britain’s Vodafone Group Plc (ADR) (NASDAQ:VOD).
Rumors have abounded this year that Verizon Communications Inc. (NYSE:VZ) wanted to buy out Vodafone Group Plc (ADR) (NASDAQ:VOD)’s 45% share of the combined wireless business. So far nothing concrete has emerged from all the hype.
Vodafone Group Plc (ADR) (NASDAQ:VOD) has been active in mergers and acquisitions, and recently made a bid for the cable company Kabel Deutschland to give it more exposure to the expanding German market. As long as it doesn’t overpay, the deal should be a positive for them.
The increased cash flow will help fund its relatively generous dividend of about $2 a share. And at a trailing P/E of only 8 the stock is not expensive.
Verizon, although its shares have outperformed the market by a big margin over the last five years, probably needs to pump up sagging growth to keep its top ranking in the wireless industry as measured by subscribers. Twice in the past six quarters it has reported negative earnings, and the overall trend is down — since 2008 EPS has declined about 80%. Keeping all the Verizon Wireless profits for itself may have been why it wanted to kick out Vodafone Group Plc (ADR) (NASDAQ:VOD).
Conclusion
The potential AT&T Inc. (NYSE:T)/Leap Wireless International, Inc. (NASDAQ:LEAP) deal is just the latest in a barrage of activity in the telecommunications industry. I also wouldn’t be surprised if Verizon and Vodafone eventually come to an agreement regarding its joint venture.
Whatever happens, investors should keep a sharp eye out for any opportunities (or fallout) from these transactions.
Mark Morelli owns shares of AT&T Inc. (NYSE:T); and Vodafone. The Motley Fool recommends Vodafone Group Plc (ADR) (NASDAQ:VOD).
The article Should You Leap Into Action With AT&T? originally appeared on Fool.com.
Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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