Leap pockets Pocket in south Texas JV

Leap Wireless International Inc. expanded its presence in southern Texas with an agreement to form a Leap-controlled and managed joint venture with regional operator Pocket Communications. The agreement will call for Leap to control 76% of the venture and will result in the Pocket brand disappearing from its south Texas markets. The deal does not impact Pocket’s operations in the New England region.
If approved by regulators, the deal calls for the JV to gain control of nearly all of Pocket and Leap’s wireless and operating assets in the south Texas area. In addition to maintaining 24% control of the JV, Pocket will also sell some of its assets to Leap for $38 million that Leap will in turn contribute to the JV. Both companies will have “certain put and call rights on Pocket’s interest in the joint venture,” which they said could commence after three-and-a-half years, with Pocket obligated to sell its interest in the JV to Leap in the event Leap experiences a change in control.
(This obligation could come into play as Leap has again come under the microscope for possibly looking towards a merger or as an acquisition target.)
Leap said it currently serves around 400,000 customers under its Cricket brand in the south Texas area, while Pocket, which launched in the area in late 2006, claims around 320,000 customers in the area. Both carriers offer similar flat-rate, unlimited calling plans that do not require a contract or credit check.
Leap and Pocket claim the JV will generate “significant cost synergies, beginning about twelve months after closing, as a result of efficiencies from improved purchasing, customer care, and broad operational improvements, as well as the elimination of overlapping cost such as coverage redundancies, overlapping distribution, and some customer awareness activities.” Leap said it could see OIBDA savings in the range of $50 million to $60 million annually within two years of the deal closing. The carriers also said the JV should result in less churn in the area as their combined network operations will provide better coverage, and presumably fewer choices, for customers.
“We are pleased to have come to a mutually beneficial agreement with Cricket; the benefits of this transaction are obvious and clearly create a combined value that is significantly more than the individual parts,” said Paul Posner, Pocket’s CEO. “As a combined entity, South Texas should continue to be one of Cricket’s best performing regional clusters and we at Pocket are excited to be bringing even more robust offerings to our retail channel partners. These enhanced offerings will allow the combined operations to compete even more effectively against other flat-rate wireless operators in the area. Over the past four years we have seen Cricket improve its operational capability and execution; we value their strategic vision and believe that their spectrum position, coupled with their ability to deliver more advanced service offerings, provide an opportunity to create even more value than continuing to compete on a stand-alone basis.”