Hello! And welcome to our Friday column, Worst of the Week. There’s a lot of nutty stuff that goes on in this industry, so this column is a chance for us at RCRWireless.com to rant and rave about whatever rubs us the wrong way. We hope you enjoy it!
And without further ado:
I spent this column last week trying to understand the reasoning behind AT&T’s plans to acquire Leap Wireless, not so much from an operational angle, but more from a “why would AT&T want to keep the Leap brand” angle. This argument was highlighted by the fact that AT&T already has a couple of “brands” targeting the no-contract space where Leap has attempted to make a go of it, an attempt that seems to have and continues to come up short.
This week I would like to stay on that topic, but attempt to figure out why AT&T ended up paying what it paid to acquire Leap. From a Securities and Exchange Commission filing by Leap released this week, it would appear that AT&T was the one, and only, company willing to put in an offer to acquire Leap. While names were not blatantly spelled out in the filing, analysts have put together a list of various “parties” involved in the process, which seemed to indicate that when it came time to actually “putting up or shutting up,” only AT&T wanted to keep talking.
According to Leap’s filing, AT&T had initially put in an offer of $9.50 per share to acquire Leap, which was still a hefty premium over the $5 to $6 per share price Leap had been trading at leading up the announced deal. However, and this is where it gets good, Leap’s management had a meeting with AT&T’s management and somehow “convinced” them that while $9.50 was a good price, $15 per share was a better price.
That’s right. Leap is managed by a group of Jedis.
Now, you would think that a company as large and powerful as AT&T would be helmed by some master negotiators that live and breathe these sorts of tactics. Yet, somehow the young whipper-snappers at Leap appeared to have come in and pulled off an amazing negotiating ploy that should go down in the annals of negotiating history.
This Jedi Mind Trick was somewhat glossed over in Leap’s SEC filing, with the event simply described as:
Later on July 8, 2013, Mr. Hutcheson and Dr. Rachesky met with Mr. Stephenson and another member of AT&T senior management. Dr. Rachesky and Mr. Hutcheson discussed the value of Leap’s business and how an acquisition of Leap would strengthen AT&T’s position in the growing prepaid segment of the wireless market, the potential network, marketing and capital expenditure synergies, the effects on AT&T’s spectrum position and the value of Leap’s tax assets to AT&T. During the several hours of negotiation that ensued, Dr. Rachesky negotiated with Mr. Stephenson to increase AT&T’s initial bid price of $9.50. Mr. Stephenson ultimately agreed that AT&T would be willing to pay $15.00 per share of Leap common stock, plus one contingent value right per share.
That’s it?!? AT&T CEO Randal Stephenson “ultimately agreed” to increasing his bid by 58% despite there not being another party interested in placing a bid? All because Leap’s management pointed out some perceived advantaged of acquiring Leap that AT&T somehow might have missed in working up its initial bid?
Jedis work in mysterious ways.
The deal was even more remarkable in the face of Leap’s drastically deteriorating operating performance, which has seen the carrier lose 1 million customers, or approximately 20% of its customer base over the past year. Sure, AT&T has said that Leap’s Cricket brand will provide it with a strong offering in the no-contract space, but if previous history is any indication, people are not exactly flocking to anything Cricket related.
It should be noted that AT&T did get some extra “value” out of the deal as well in that the price seems to have included full support of the Leap board as well as support from one of Leap’s largest shareholders. Plus, with a price at such a premium over Leap’s previous trading range, few would expect anyone else to come in with a counter bid.
(Calling Mr. Ergen. Mr. Charlie Ergen.)
I am guessing AT&T may have learned a thing or two from Sprint’s recent trials-and-tribulations in trying to both acquire and be acquired.
If you want to get a deal done. And I mean really get a deal done. Quit screwing around over a few (million, billion) dollars.
Oh, and I guess we should also mention that Leap does control a nice portfolio of spectrum holdings in the 1.9 GHz and 1.7/2.1 GHz space that could be helpful for AT&T’s attempts to bolster its wireless network capacity. Though, if we are to take AT&T’s words at face value, this was a deal to get a better angle on the no-contract space, and not a move to get its hands on more spectrum.
(Dang! Looks like being spurned by government regulators in trying to acquire T-Mobile USA did have an impact on AT&T’s psyche. It also appeared to have learned that you may not want to announce your true intentions upfront if those intentions relate to taking a competitor out of the picture.)
At this point, I don’t know what to believe. And for that I blame Leap’s management, which is obviously using its Jedi powers to screw with my feeble mind. Well played Jedis.
OK, enough of that.
Thanks for checking out this week’s Worst of the Week column. And now for some extras:
–Samsung’s quest for world domination took on a new intensity as the company recently announced the availability on a new non-neon color available for its Galaxy S4 smartphone with the launch of “Brown Autumn” exclusively through Verizon Wireless. For those not up on their Crayola color chart you can imagine “Brown Autumn” as “Brown,” or the color with perhaps the most dour sounding name.
Dour or not, I like it. There are definitely not enough browns in the smartphone space, and no reason consumers that have not time traveled back to the 80s should be forced to pick between black or off-black colors for their precious life partner.
–Finally, the ice cream purveyors at Haagen-Dazs have released an application for Apple’s iOS that plays a two-minute musical piece tied to the time needed for a carton of Haagen-Dazs ice cream to reach its proper “temper” after being removed from a freezer.
As Haagen-Dazs explains:
The waiting experience turns into a musical symphony once users point their iPhone with the Concerto Timer app at one to two Haagen-Dazs cartons. The augmented reality feature showcases a perfectly timed, two-minute concert of Bach Inventions No. 14 performed by a violinist and cellist – all while users wait for the ice cream to temper. By the end of the concerto, the ice cream will have softened to a perfect consistency.
No word yet if Haagen-Dazs is also working on a timer to count down the effects of brain freeze.
I welcome your comments. Please send me an e-mail at dmeyer@rcrwireless.com.
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