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Transaction
Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail bwalko@sokoloffco.com with your contact information.

Archives > Transaction Case Study 72

SOKOLOFF & COMPANY CASE STUDY
AT&T Acquires Leap Wireless

DATE ANNOUNCED:  July 12, 2013
BUYER:  AT&T, Inc. (NYSE: T)
SELLER:  Leap Wireless International, Inc. (NASDAQ: LEAP)    
PURCHASE PRICE: $1.19 billion, or $15 a share plus one Contingent Value Right per share (CVR)   
FORM OF PURCHASE PRICE:  Cash

SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES

Year 2010 2011 Trailing Twelve Months
through
June 30, 2013

Revenue

$2.70B

$3.07B

$3.05B

EBITDA

N/A

N/A

$466.62M

Cash

 

 

$913.05M

Debt

 

 

$3.64B

Purchase Price

 

 

$1.19B

Enterprise Value

 

 

$4.03B

Multiple of Revenue

 

 

1.32

Multiple of EBITDA

 

 

8.63

Number of Subscribers

 

 

4,839,478

Value per Subscriber

 

 

$833

Total Population  Area Served

 

 

96,000,000

Value per Pop

 

 

$41.98

ARPU (Monthly)

 

 

$44.89

TRANSACTION DRIVERS: 
AT&T acquired Leap Wireless which operates under the Cricket brand in order to acquire spectrum and tap into the pre-paid wireless market.

Spectrum is the main driver in the industry right now behind the recent wave of consolidation of companies including T-Mobile’s acquisition of MetroPCS and Japan’s SoftBank Corp. takeover of Sprint. 

SOKOLOFF COMMENTARY:
The transaction was announced at $15 per share.  For a short time, share price rose above $17, eventually settling down to around $16.  Some financial journalists, under deadline pressure, immediately assumed the higher price was indicative that a competing offer might come to the table.  Often, that is indeed the driver and one cannot rule out entirely the possibility that AT&T’s offer may be topped.

Smart money recognized there was another reason to value the shares above $15.  AT&T also agreed to allow Leap to sell its unbuilt 700 MHz A Block Chicago Spectrum which it bought in 2012 for $204 million.  The proceeds of this sale will be funneled to current shareholders via a mechanism called a CVR, “Contingent Value Right.”  So each selling Leap shareholder gets a CVR along with cash of $15 at closing.  Barring the FCC moving quickly to finally release additional spectrum (it won’t), the value of Leap’s Chicago spectrum has probably appreciated.  Even without the appreciation, each CVR is worth $2.57 ($204 million divided by 79.19 million shares outstanding).  Leap has three years to complete the spectrum sale.  In the unlikely event that no sale is concluded the spectrum reverts to AT&T and the CVRs become worthless.

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