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AT&T to Acquire Leap Wireless International (T, LEAP)

AT &T Inc. (NYSE: T) announced on Friday that it has agreed to acquire a prepaid wireless communication services provider, Leap Wireless International Inc. (NASDAQ: LEAP), in an approximate deal of $4 billion. The deal also assumes Leap Wireless International’s debt.

The deal will allow the telecommunication giant to accumulate additional spectrum.

According to the terms of the deal, AT&T will acquire 100% equity stake in Leap Wireless International and about 5 million subscribers.

The offer price of $15 or about $1.2 billion implies a premium of 88% over Leap’s closing stock price of $7.98 on Friday.

A data provided by Reuters showed that as of April 15, Leap had $2.8 billion in debt.

Shares of Leap Wireless rallied about 100% in afterhours trading on Friday, having gained 2.50% in regular trading hours.

The wireless communication industry has witnessed some major deals in the recent past (Sprint’s acquisition by Softbank) as companies are competing to increase their spectrum presence.

Just two years ago, AT&T had entered in a deal to acquire T-Mobile USA, nation’s fourth largest wireless network services provider for $39 million; however, the deal was blocked by regulators.

AT&T–the second biggest wireless services provider in the U.S., has been exploring ways to grow in the domestic market, which is, huge but fiercely competitive. The Company is now looking to acquire more spectrums.

According to Reuters, the Company had several round of talks with Leap’s management, last year.

As more and more U.S. consumers use smartphones and tablets for computing, there is an urgent need to increase bandwidth; prompting wireless services providers to increase their spectrums.

Speaking to Reuters, Todd Rethemeier, an analyst at Hudson Square Research said , “Its mostly about the spectrum for AT&T.”

“It’s Leap’s only alternative. Continuing as an independent company is not a viable option for Leap at this point,” added Rethemeier, according to Reuters.

The deal is likely to close by the first quarter of the next year, subject to an approval from regulators.

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