Leap, MetroPCS Drop as Analyst Cuts Rating on Merger Issues

Leap Wireless International Inc. (LEAP) and MetroPCS Communications Inc. (PCS) fell after Sanford C. Bernstein & Co. cut its recommendation for the stocks, saying any takeover bids for the carriers would be “fraught with challenges.”

Leap dropped 7.5 percent to $9.76 at the close in New York and MetroPCS slid 5.7 percent to $9.96. After gains in recent months, any takeover prospects are “in the stocks,” Bernstein’s Craig Moffett said in a note to clients today. The analyst cut his rating for each stock to “market perform” from “outperform.”

Verizon Wireless and AT&T Inc. (T), the largest U.S. wireless carriers, might not be permitted by regulators to buy the smaller rivals, Moffett said. The No. 3 carrier Sprint Nextel Corp. (S), which abandoned plans to buy MetroPCS, and T-Mobile USA, the No. 4, are in “challenging financial situations,” Moffett said.

Even as Richardson, Texas-based MetroPCS and San Diego- based Leap remain viable targets for larger carriers, “it’s time to take the chips off the table,” Moffett said.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net