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Paulson Backs $1.2 billion AT&T Deal for Leap Wireless

Updated from 11:18 a.m. ET with Leap Wireless comment and afternoon share prices .

NEW YORK ( TheStreet) -- Hedge fund giant Paulson & Co., a top Leap Wireless (LEAP - Get Report) shareholder, is supporting AT&T 's (T - Get Report) $15 a share takeover of the pre-paid wireless service.

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

Late on Friday, AT&T (T - Get Report) said it was buying Leap Wireless (LEAP - Get Report) 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.

The proposed merger has an equity value of $1.2 billion and comes at close to a 90% premium to Leap Wireless's closing price on Friday of $7.98.

Leap Wireless's largest shareholder 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.

MHR Fund Management is the shareholder referenced as having agreed to cast votes in favor of Leap's proposed merger with AT&T, Gregory Lund, a Leap Wireless spokesperson said in an e-mail. "Paulson is not included in the 29.8%," Lund wrote.

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 Leap Wireless investors include Magnetar, Blackstone (BX) and Owl Creek Management, the data show.

The fund has had the highest profile among hedge fund investors targeting potential wireless consolidators and has played a crucial role in the industry's realignment.

Paulson & Co.'s head John Paulson helped advocate a lower debt level in MetroPCS's takeover by T-Mobile, and the fund cast a crucial vote of support on SoftBank's bid for Sprint.

John Paulson has roots in merger arbitrage investments, although the fund has received more press recently for shorting the subprime mortgage market prior to the financial crisis and for making a large investment in gold amid post-crisis central bank stimulus.

Paulson & Co. made big gains on stakes in Sprint and MetroPCS after buying both companies' shares when they were priced for failure The fund is also poised to see a significant profit from a takeover of Leap Wireless at $15 a share.

As part of Friday's proposed merger, AT&T will acquire Leap Wireless's Cricket brand name and the 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.

Leap Wireless shares were trading significantly over AT&T's offer price in early Monday afternoon trading, having risen over 111% to $16.84.

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-- Written by Antoine Gara in New York

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