MetroPCS Communications Inc., which is expected to launch its prepaid cellphone network in Greater Los Angeles later this month, offered Tuesday to buy regional rival Leap Wireless International Inc. in an all-stock transaction worth $5.1 billion.
The long-expected combination of San Diego-based Leap and Dallas-based MetroPCS would create a nationwide discount service with 6.2 million customers in 43 markets and wireless licenses in 200 major markets.
Under the terms, MetroPCS would give Leap shareholders 2.75 shares for every Leap share. MetroPCS also would assume $2 billion in debt. The deal would give Leap shareholders 34.6% of the combined company; MetroPCS would get 65.4%.
The market responded enthusiastically, with Leap shares surging $10.97, or 15%, to $83.47 on Tuesday.
MetroPCS shares rose $1.36, or 5%, to $28.65.
The companies, among the nation's fastest growing wireless providers, 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.
"We believe now is the right time to combine our two businesses," said MetroPCS Chairman Roger D. Linquist. "We see a compelling strategic rationale to bring together the two companies."
Linquist said that the two companies had been discussing a combination on and off for almost four years. He said a merger could save $2.5 billion in operating costs and help retain customers.
Leap spokesman Greg Lund said only that his company was "reviewing" the offer from MetroPCS. He couldn't say when more details might be announced.
MetroPCS, which went public in April, offers prepaid unlimited talk-time plans, from $30 to $50 a month, with added features for each $5 price step.
Leap, a spinoff from San Diego based Qualcomm Inc., offers pay-as-you-go plans through its Jump Mobile unit as well as similar hybrid monthly plans under its Cricket brand from $25 to $60, depending on added features.
"The combination certainly makes a lot of sense," Stanford Group Co. analyst Michael Nelson said. But neither Nelson nor other analysts expect this offer to be the final one.
Despite the positive response from the stock market, he said, this is "a constructive first step but is probably not the last step."