Leap Wireless (LEAP) is next in line to get acquired

Godfather Sitting

Leap Wireless traders are worse than an on-again off-again girlfriend.

Just two weeks ago at CES, T-Mobile CEO John Legere said in statement to Reuters that Leap is "one of those things that makes extreme sense for us to look at".

If you already own shares of Leap, I'm sure you've heard the story. For those of you who don't have Leap on your watch list, here's what happened:

After Mr. Legere's statement, Leap made a 2 day move from $6.28 to $7.15, a decent 14% gain (if you were able to nail the exact bottom and the exact top). However, in the 10 days since hitting that $7.15 price, shares fell all the way down to $5.78.

What gives?

Something doesn't add up. A downgrade came in from Jeffries on the 17th, but shares had already tanked nearly a point by then. Why was the market so quick to price out a potential takeover of LEAP ?

Mastery Bottom Line:

There could be a great opportunity here with Leap. Naysayers will point to the incompatible networks between T-Mobile (GSM) and Leap (CDMA). But T-Mobile has disproved this notion with the recent acquisition of Metro PCS.

CDMA (Leap's Network) is being killed by all of the operators to make room for Voice over LTE.

New CEO John Legere is obviously hungry, and he has a plan. Prepaid wireless offers the best margins. Doesn't it make sense to add to T-Mobile's prepaid subscriber base by buying out Leap?

I believe so. I also believe that the question is not if Leap will get bought out - it's a matter of when the Leap will get bought out.

I have two concerns. One being the timing of an acquisition by T-Mobile, which I suspect does not have the ability to handle multiple acquisitions from an operational standpoint. Acquisitions are not an easy task. However, if they don't swoop in soon with an offer, another operator will.

AT&T (T) is planning on shelling out $780M for Alltel's 585k subscriber base and spectrum. Leap has 6 million subscribers - nothing to scoff at. But, Leap also has quite a bit of debt. It will be interesting to see how things play out in 2013 for Leap.