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Telco M&A May Amazingly Continue After Leap Wireless, AT&T Deal

Updated from 9:22 a.m. ET with Paulson & Co. comment and opening share prices.

NEW YORK ( TheStreet) -- There are many companies left for telecom giants to fight over amid a frenzy of merger and acquisition battles as carriers look to scale their wireless networks and improve smartphone wireless service.

On Friday, AT&T (T - Get Report) said it is buying Leap Wireless (LEAP) for $15 a share, in a deal that could add millions of pre-paid customers to the telecom giant and bolster its wireless service capacity.

"Perfect fit for AT&T. They get valuable spectrum and 5 million customers," Paulson & Co, a top Leap shareholder, said in an e-mailed statement. "Good outcome for Leap shareholders," the $18 billion hedge fund added.

Paulson & Co. holds nearly 10% of Leap's outstanding shares, according to Securities and Exchange Commission filings, after taking a large position in the first half of 2012. Other large investors include Magnetar, Blackstone (BX) and Owl Creek Management.

Leap Wireless's largest shareholder MHR Fund Management is supporting the company's acquisition by AT&T, however, analysts and investors are speculating there could be a bidding war.

In a Friday press release, Leap Wireless said 29.8% of its outstanding shares have entered into an agreement to vote in favor of the transaction. Gregory Lund, a Leap Wireless spokesperson, confirmed those votes only relate to MHR's stake.

While the merger is just the latest in a frenetic two years of consolidation in the industry, initiated by AT&T, there are likely more deals yet to come.

Meanwhile some telecom industry analysts believe AT&T faces the prospect of a bidding war for Leap Wireless given the value of the company's spectrum assets to carriers such as Verizon Wireless (VZ - Get Report), T-Mobile USA (TMUS - Get Report) and Dish Network (DISH - Get Report).

Verizon could make a counter-bid to AT&T's deal, given forecasts the company could fall behind its primary competitor in wireless spectrum per million subscribers, according to Citigroup analyst Michael Rollins. According to Rollins, AT&T will have spectrum of 1.1 megahertz (MHz) per million subscribers and 1.7 million MHz per million post-paid subscribers, ahead of Verizon Wireless.

Burgeoning players in the U.S. wireless market could also take a look at trying to eclipse AT&T. Charlie Ergen-chaired Dish Network could look at Leap Wireless's pre-paid customer network as the asset the satellite TV giant needs to finally enter the wireless market, according to Rollins.

T-Mobile may have been involved in a private bidding war with AT&T for Leap Wireless, according to Oppenheimer analyst Timothy Horan.

"[We] would not be surprised if [T-Mobile] re-enters the bidding war as the spectrum is more important to it," Horan wrote.

Some see AT&T's deal as poetic justice. "[Buying] Leap is a good way to stick it to T-Mobile," Craig Moffett, co-head of MoffettNathanson, wrote in a note. Moffett is not impressed with the strategic importance of Leap Wireless to Dish or AT&T and sees the deal as another reason for Dish and DirecTV (DTV) to consider a merger.

Bidding wars have been a key part of T-Mobile, Sprint (S), Clearwire (CLWR) and MetroPCS's consolidation efforts. In spite of a handful of recent deals, consolidation efforts across the industry may not be complete.

After Dish Network pursued both Sprint and Clearwire, analysts now speculate the company may pin its wireless industry strategy on a merger with T-Mobile. Given Dish's lack of wireless customers and its valuable spectrum, analysts had also consider the company a natural fit for AT&T.

Sprint and T-Mobile, meanwhile, may eventually look to merger with T-Mobile according to Citigroup's Rollins. The analyst also points out Telephone & Data Systems (TDS)-owned US Cellular as an attractive wireless asset in the consolidating industry.

For now, AT&T will acquire Leap Wireless's Cricket brand name and about 5 million subscribers on the company's CDMA network, according to the terms of Friday's merger agreement.

"Cricket's employees, operations and distribution will jump start AT&T's expansion into the highly competitive prepaid segment," AT&T said in a statement. Cricket customers may benefit from accessing AT&T's recently upgraded network, the company added.

The telco giant will also acquire valuable 4G LTE and AWS spectrum, in a move that helps to fulfill its network expansion efforts. AT&T will divest Leap Wireless's Chicago-based spectrum licenses, which it acquired from Verizon in 2008.

In a sense, AT&T's move for Leap Wireless takes the carrier full circle on its wireless acquisition plans.
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