ABC News – Leap Wireless International Inc.’s shares plunged Wednesday following the news that T-Mobile and MetroPCS would combine forces.
THE SPARK: Leap was believed to be a potential acquisition candidate, but the T-Mobile and MetroPCS deal has some analysts thinking that Leap’s future is much less bright than before.
THE BIG PICTURE: Leap focuses on the pre-paid wireless niche, as does Metro PCS. Its stock actually jumped on Tuesday on the speculation that T-Mobile might buy up Leap next or Sprint may want it too, but several analysts have since dismissed that idea.
THE ANALYSIS: Nomura analyst Mike McCormack said that Leap isn’t as attractive as MetroPCS. It has a smaller subscriber base, lower margins and burns cash. While the company’s new chief financial officer has begun a turnaround, McCormack said he thinks it will be some time before the changes prove fruitful.
Citi analyst Michael Rollins downgraded his rating on Leap to “Neutral” from “Buy” saying the company is facing increased operating risk following the deal. He has an $8 price target on its shares.
SHARE ACTION: Leap’s shares fell $1.36, or 18 percent, to close at $6.23. Its stock has traded between $4.28 and $11.30 in the past 52 weeks. It was trading over $17 in June 2011.