MetroPCS Holders Cheering The Wrong Merger... It's Time to Revisit The Past (PCS, S, LEAP, T)

MetroPCS Communications, Inc. (NYSE: PCS) had a stellar Wednesday on rumors and talk that Deutsche Telekom may be wanting to roll the no-contract and prepaid wireless outfit into its T-Mobile operations.  What is interesting is that MetroPCS has been the subject of M&A dreams before, only to fail in at least two possible deals.

T-Mobile may be the current merger flavor of the day, but this is the wrong effort or at least the wrong focus.  Sprint Nextel Corporation (NYSE: S) was the most recent potential acquirer but CEO Dan Hesse was blocked by his board of directors over fears that investors were already punished excessively and that the acquisition would put further pressure on its shares.  Sprint now owns Virgin in this overlapping field of prepaid and no-contract wireless and Sprint is still losing money.

The other would-be merger in the past was with Leap Wireless International Inc. (NASDAQ: LEAP).  With this company being the direct comparable outfit, it would make sense for these two companies to try to get past their differences and consider a stock-for-stock merger again.  While it will generate less for shareholders today versus the past, it would still allow for upside if the combined efforts generate higher earnings.

AT&T Inc. (NYSE: T) recently botched the T-Mobile buyout and T-Mobile does now have a few billion more in cash to spend.  Could that make T-Mobile a true buyer?  Anything is possible.  What T-Mobile does not have going for it is a stock in the U.S. that would allow it to do a stock transaction.

Leap Wireless is worth only $456 million and MetroPCS has a market value of $2.7 billion.  Both shares surged on Wednesday and both shares are down severely from their 52-week lows.  Perhaps these companies should swallow some pride and join their millions of customers together rather than hoping that one of the larger U.S. carriers will hope to grow with a reach-down effort into no-contract and prepaid wireless.  If the companies merge in a stock for stock transaction the action will still allow the holders who are long and wrong to recoup their losses if these two companies can get their earnings higher again.

Deutsche Telekom has reportedly issued the “no comment” but we would not have expected anything different in the current climate.

JON C. OGG