MetroPCS: The Stupidity of Some Merger Rumors

MetroPCS Communications Inc. (NYSE: PCS) is trading higher today on news that the company is back in the M&A rumor mill. DealReporter.com said that talks have been held with strategic buyers and those were named as Dish Networks (NASDAQ: DISH), Sprint Nextel Corp. (NYSE: S), T-Mobile, and perhaps others. While we called this situation one of stupidity, we also admit that any deal is possible in this crazy market even if it is nothing short of silly.

The first reason we would call this stupidity is that MetroPCS was literally down on its back over the summer. It is almost impossible to imagine this but shares have bounced 100% since the June low. At $11.81, the 52-week range is $5.53 to $12.48. If a deal arises now that shares have doubled then we want to warn any would be buyer at this point that we will issuing the Mr. Dumas award for not being aggressive during a weak market and buying this company on the cheap. To put that in perspective, MetroPCS has a market cap of about $4.3 billion.

The real stupidity here is that MetroPCS and Leap Wireless International Inc. (NASDAQ: LEAP) once tried to merge but they couldn’t get a deal done. Leap is only worth about $528 million in market value and it has recovered only by about 50% since its lows this last summer. That is still a major move, but it is “cheap” if you consider the 100% gain or so seen in MetroPCS since the summer lows.

As far as Sprint Nextel Corp.n (NYSE: S) is concerned, its stock has more than doubled off of its lows. With shares up 3% today at $5.63, the 52-week range is $2.10 to $5.76. Despite its woes, it is still listed as being worth almost $17 billion in market cap. Well, here is a question. Didn’t Dan Hesse already get shot down by his board of directors over trying to do a deal to buy MetroPCS before? If Sprint surfaces as the buyer at this point we will not be poking fun at Mr. Hesse. We’ll be humiliating each board member who votes to go along with it. Sprint may have more than doubled, but it cannot afford to throw away many extra dollars, let alone more than $2 billion more or so that a MetroPCS buyout would have cost over the summer when the wireless giant could have bought this when the prepaid wireless services was on its back.

MetroPCS is still up 4.6% at $11.77 and shares have traded as high as $12.35 on the day. Even Leap Wireless is enjoying reciprocal gains today on the news. Thomson Reuters expects that MetroPCS will have $5.1 billion in 2012 revenues versus $3.17 billion for Leap Wireless.

Again, anything is possible when it comes to M&A. Sometimes the price has to rise before a company can even justify a sale. That being said, we will be pointing out the lunacy of chasing a company on the heels of a major run-up when a deal might have been better 100% ago. This is particularly the case a where a wireless provider’s customer base can leave so easily.

JON C. OGG