MetroPCS has hired several advisors to explore a potential purchase of rival Leap. But can this combination work?
The two companies appear to fit well together. They operate in different markets, so a merger would vastly increase the combined company’s coverage area (the two already have an agreement that lets one’s customers place calls when they are in the rival’s territory). They could shave costs by combining certain operations such as billing and customer care. “We believe PCS’s board and large shareholders have likely pressured [management] to look at a deal,” Jonathan Chaplin, an analyst at Credit Suisse, wrote in a Feb. 12 note. “We also believe the company will investigate both a potential sale and an acquisition.”
Let’s not forget that Metro and Leap have tried to merge before — and failed. In 2007, Leap rejected an unsolicited takeover offer from MetroPCS, saying it undervalued the business. That followed a legal tussle over patents. In 2006, Leap had filed a lawsuit saying Metro violated its patents related to offering all-you-can-eat pricing plans. Metro counter-sued, alleging disclosure of trade secrets.
Yet, considering the accelerating competition in the already cutthroat U.S. wireless market, and any pressure the companies’ boards and shareholders may be placing on the management for a merger, CEOs Doug Hutcheson and Roger Linquist may need to get past any lingering unresolved tension quickly to make a deal happen.