Wireless phone provider Leap Wireless International Inc. said Sunday that it is rejecting an unsolicited buyout offer from MetroPCS Communications Inc.
Combining the companies would have created a nationwide wireless carrier dedicated to the discount market.
Earlier this month, Dallas-based MetroPCS publicly offered to give investors in regional rival Leap 2.75 shares of MetroPCS stock for every Leap share they own.
At MetroPCS' closing price Friday of $25.10 per share, that valued the deal at $69.03 per share, or about $4.75 billion. MetroPCS would also have assumed $2 billion in debt.
Shares of San Diego-based Leap closed Friday at $74.32.
S. Douglas Hutcheson, president and chief executive officer of Leap, said in a letter Sunday to Roger Linquist, MetroPCS chairman and chief executive offer, that the proposal was not in the best interests of Leap and its shareholders and "completely inadequate in a number of critical areas."
Hutcheson said in the letter that the proposal doesn't take into account Leap's growth possibilities. The letter also mentioned the hundreds of millions of dollars Leap invested to launch its broadband offering debuting Monday.
He also said Leap was concerned about MetroPCS's ability to "successfully grow your business in line with shareholder expectations."
The letter said Leap had tried unsuccessfully to talk with MetroPCS about merger possibilities or other collaborations.
"Therefore, given our broad and repeated efforts, we were surprised by your sudden offer and the fact that you decided to make the offer publicly before even attempting to enter into substantive discussions with us," Hutcheson said in the letter. "We can only conclude that you recognize Leap's compelling long-term growth prospects and that your aggressive approach is intended to try to opportunistically capture a disproportionate share of this value for your shareholders prior to an increase in our relative valuation."
On Sunday, Linquist said they are disappointed that Leap is rejecting their offer.
"The contacts we have had with a number of Leap's shareholders indicate that they want to see a combination of our two companies happen without unnecessary delay," he said in a news release Sunday. "It appears that Leap's board is ignoring the will of its shareholder base."
Leap and MetroPCS both target subscribers by using a lower-cost structure to compete with the bigger carriers on price. They have similar business models but few overlapping territories.
Both companies market no-frills unlimited talk service, with customers paying up front. The larger carriers generally target higher-margin customers with good enough credit to sign up for long-term contracts.
Leap, which markets its service under the name Cricket Communications, was spun off from Qualcomm Inc. in 1998. It enjoyed early success but spiraled into bankruptcy five years later as the telecommunications business melted down. Leap's emergence from bankruptcy followed contentious fights over its assets and the reorganization.
MetroPCS had its initial public offering only four months ago.