Shares of Leap Wireless International Inc jumped 9 percent after a report on DealReporter.com said the low-cost wireless carrier appeared close to a deal with investment banks to explore strategic options.
The Financial Times Group-owned service, which quoted a person familiar with the matter, said the process of merging Leap or any other companies in the space was still in its early stages and could last through the first two quarters of 2010.
Leap has worked closely with Goldman Sachs in the past, the report said.
Leap spokesman Gregory Lund declined comment on the report.
In September, a source told Reuters that rival MetroPCS Communications Inc was in discussions with bankers about possible deals.
I wouldn't be surprised to learn that Leap is looking at strategic alternatives, given the current state of the wireless industry, which remains hyper-competitive, Soleil/Nelson Alpha Research analyst Michael Nelson said.
Consolidation makes sense, he said.
The unlimited prepaid space, where customers pay a monthly fee in advance for phone calls without committing to a long-term contract, has witnessed heightened competition of late, with new entrants and larger carriers increasingly showing interest.
On Friday, Verizon Wireless, the biggest U.S. mobile service, said it was cutting its fees for voice calls by about 30 percent.
It is in the interest of Leap's board to look at all alternatives, including MetroPCS, Nelson said.
It's certainly in Leap's best interest to at least explore the potential of attracting as many interested parties as possible, he added.
There has been investor chatter over the last few months that Leap Wireless or MetroPCS could merge or become a target to larger wireless carriers. Analysts have cited America Movil, Deutsche Telekom or AT&T as possible buyers.
Investors have long speculated about a possible deal between Leap and MetroPCS. In 2007, MetroPCS made a $5.5 billion bid for Leap at an exchange ratio of 2.75 MetroPCS shares for each Leap share, but Leap rebuffed the offer.
Leap shares, which earlier touched a day-high of $14.98, were up 6 percent at $14.62 in mid-afternoon trade on Nasdaq.
Leap options were also active.
There is very heavy trading in Leap Wireless call options today, apparently on takeover chatter, said WhatsTrading.com option strategist Frederic Ruffy.
According to speculation, the company has hired an investment bank to explore strategic alternatives. So options investors appear to be positioning for further gains.
By early afternoon, Leap Wireless option volume was double the recent average daily turnover with 9,753 calls and 2,556 puts traded, data from option analytics firm Trade Alert show.
Investors often use equity call options, giving them the right to buy the company's shares at a fixed price within a specified time period, to speculate on share price appreciation. A put conveys the right to sell the stock at a given price and time.
(Reporting by S. John Tilak in Bangalore and Doris Frankel in Chicago; Editing by Jarshad Kakkrakandy)