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Merger Of MetroPCS, Leap Wireless Would Create Nationwide Wireless Net

The two serve different geographical customers -- MetroPCS markets to urban consumers, Leap to rural consumers -- and together would have licenses for most of the top 200 markets.
The long-anticipated merger of MetroPCS Communications and Leap Wireless International moved closer to reality Tuesday as MetroPCS formally offered to acquire Leap in a stock swap deal initially valued at $5.2 billion. If successfully combined, the companies would form a new national wireless carrier.

The two serve different geographical customers -- MetroPCS markets to urban consumers, Leap to rural consumers -- but their no-contract flat rate services are similar, making the two firms ideal business marriage candidates.

Stating its belief that "Leap's stock price has traded in part in anticipation of a merger between the companies," MetroPCS presented its case for the merger, which would leave MetroPCS as the dominant partner with about 65 % ownership of the new company.

"The combination of our two companies would create a new national wireless carrier with licenses covering nearly all of the top 200 markets in the United States," said MetroPCS' chairman and chief executive officer Roger D. Linquist in a letter to Leap's top executives. "Such a combination would significantly expand the network service area available to the subscribers of both companies and would better position the combined company to more aggressively compete with the other national wireless carriers."

The letter was addressed to Leap's chairman, Dr. Mark Rachesky M.D., and S. Douglas Hutcheson, president and chief executive officer.

With just two overlapping markets in the 200 nationwide markets, the two firms have long been considered a perfect fit. When Leap reported net subscriber additions that were lower than expected last month, rumors grew that MetroPCS would attempt to acquire Leap in a merger.

Linquist said MetroPCS believes a combined company "would achieve significant operating cost savings through a combination of market-level operating efficiencies and corporate overhead reductions." He noted that the two firms' operations are complementary and MetroPCS' preliminary analysis predicted savings of $2.5 billion in a merger.

Linquist added that a combined MetroPCS-Leap company would be able to utilize spectrum assets more efficiently. Last month, Leap said it expects to cover an additional 20 million to 28 million potential customers by the end of 2008, which would bring the total number covered by Leap's service area to as many as 81 million by the end of 2008.

The stocks of both MetroPCS and Leap were up in early trading Tuesday after the announcement. Leap did not immediately reply to the MetroPCS offer and several financial analysts said they expect other companies to consider bidding for Leap and that the price to acquire the company might rise.

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