It's a good day to be a cellphone service provider, at least if there's a chance that you might be acquired.
Shares in Leap Wireless International jumped 8 percent on Tuesday after Deutsche Telekom confirmed that it's in talks to buy another low-cost provider, MetroPCS. At $7.59, Leap is reaching levels last seen in late April.
Why the enthusiasm? Because if MetroPCS is sold, Leap will the biggest independent cellphone network operator left for for potential buyers.
Leap, which operates the Cricket brand of cellphone service, claimed about 5.9 million customers as of the second quarter this year. And it offers Long Term Evolution, the high-speed data service that is already offered by the likes of Verizon Wireless and AT&T, and is one of the main draws of newer smartphones like the iPhone 5.
Leap had previously held merger talks with MetroPCS over the years, including as recently as two years ago. None of those discussions ever led to a deal, howeve r.
Investors appear to be betting that Leap may ultimately be a takeover takeover target by the likes of Sprint Nextel. Sprint had nearly struck its own deal to buy MetroPCS earlier this year. But Sprint's board voted down the plan at the 11th hour, scuppering the proposed transaction.
On Tuesday, Sprint shares slipped on news of a potential MetroPCS deal.
If Sprint is still looking to grow by acquisition - its chief executive, Daniel Hesse, hinted as much at a recent industry conference - Leap could make sense. Its phones operate on the CDMA network standard, the same one Sprint uses, and it offers the bigger network company a chance to expand its limited LTE coverage.
But some analysts remain cool to the idea of a tie-up between Sprint and Leap. Analysts at Nomura wrote on Tuesday that they view the smaller company to be a less attractive target than MetroPCS, owing to “a smaller subscriber base, lower margins and burns cash.â€
