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Chesapeake wins breathing space with $3 billion loan

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The company, which has been embroiled in a corporate governance crisis that prompted its move to replace co-founder Aubrey McClendon as chairman, said the new unsecured loan will be used to repay money borrowed under its existing $4 billion revolving credit facility.

"This short-term loan from Goldman and Jefferies provides us with significant additional financial flexibility as we execute our asset sales during the remainder of 2012," McClendon, who will remain as chief executive officer, said in a statement.

The company, the nation's second largest natural gas producer, said it plans to sell $9.0 billion to $11.5 billion in assets this year.

It expects to close the sales of its Permian Basin property in West Texas and Mississippi Lime joint venture in the third quarter, and said it had "strong interest for prospective buyers" for those two assets.

With the new loan, Chesapeake will have a better position in bargaining with buyers who may have sought to pressure the company into accepting low bids, according to a person familiar with the situation.

The new debt facility, which matures in December 2017, was set at an interest rate at about 8.5 percent, and can be repaid at any time this year without penalty at par value, the company said.

"I would imagine that this is a relatively expensive source of financing for Chesapeake to feel compelled to pursue," said Bonnie Baha, portfolio manager at DoubleLine, which oversees $34 billion in assets under management.

Still, since Chesapeake was taking the unusual step of getting a loan to pay off an existing revolving debt facility and not securing it with assets, the company did appear to be making a sound deal.

"However, given Chesapeake's current situation, it's likely to surmise that someone is going to be left holding the bag on this one," Baha said.

Wall Street has long benefited from Chesapeake's financing moves. Prior to the new deal, the Oklahoma City-based company had paid nearly $1 billion in investment banking fees since 2000, with Jefferies taking in $118 million of that money.

Earlier on Friday, Chesapeake said it could delay asset sales in order to preserve cash flow needed to comply with requirements of its existing $4 billion corporate credit facility

Chesapeake faces a funding gap that Fitch Ratings estimated at $10 billion this year. To fill the void and trim its debt, the company aims to raise as much as $14 billion through the sale of assets and other deals.

The company said that although asset sales would help its liquidity, selling properties currently producing oil and gas can reduce its cash flow and the value of collateral used to back its debt.

"As a result, we may delay one or more of our currently planned asset monetizations, or select other assets for monetization, in order to maintain our compliance," it said in its quarterly filing to U.S. Securities and Exchange Commission.

Michael Kehs, a spokesman for the company, said the statement in the company's filing did not indicate a change in its efforts to raise money.

"There is no plan to change the asset monetization plan," he said.

Like other natural gas producers, Chesapeake has suffered an prices for the fuel sank to the lowest levels in a decade, shrinking cash flow and raising worries that companies may need to reduce their estimated value of their properties.

"If natural gas prices fall too low, then they may have to take impairment charges. I expect that's the case at some point this year," because of the slide in prices since the end of 2011, said Phil Weiss, an analyst at Argus Research.

Chesapeake has long been one of the industry's most active buyers and sellers of natural gas properties in the United States, but Wall Street analysts have begun to question whether it can keep striking enough deals to satisfy its cash needs.

The gap between cash coming in and cash going out shows "massive internal funding shortfalls," according to an April report by Standard & Poor's.

On Wednesday, Moody's Investors Service changed its outlook for Chesapeake's debt to negative from stable, citing "an even-larger capital spending funding gap for 2012," due both to lower energy prices and higher spending.

Between now and the end of 2013, Chesapeake expects as much as $23.1 billion in costs for outlays such as wells and property, according to the company and analysts.

Chesapeake's stock tumbled nearly 14 percent to close at $14.81 per share, its lowest level since March 2009, and bringing its losses so far this year to 34 percent.

(Reporting by Matt Daily, Jennifer Ablan, Jon Stempel, Michael Erman, Ernest Scheyder and Anna Driver; Editing by Jan Paschal and Bernard Orr)

Express shares up; Walgreen, outlook worries fade

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Express Scripts held its first earnings conference call for Wall Street since it closed its $29 billion acquisition of rival Medco Health Solutions that makes it the clear leader in the management of prescription benefits for Americans.

The first-quarter results, posted late on Thursday, showed solid revenue for both Express Scripts and Medco, Maxim Group analyst Anthony Vendetti said.

"We can see now a clear path to how dominant the combined company can be," Vendetti said. "Also, I think there was a little bit of relief that there wasn't a more of a negative impact from the ongoing dispute with Walgreen."

The results marked the first quarter since Walgreen, the largest U.S. drugstore chain, stopped filling prescriptions for Express Scripts patients at the end of 2011 after the companies were unable to agree on a new contract.

Analysts viewed Express Scripts' quarterly volume of prescription claims processed - which rose 3.6 percent to 192.8 million - as evidence its business was showing resilience to losing Walgreen.

"We don't believe the lack of WAG in the network is having any meaningful impact on ESRX's results," Cowen & Co analyst Charles Rhyee said in a research note.

Walgreen shares were off 1.3 percent at $33.62 at midday on Friday.

On the conference call, Express Scripts Chief Executive Officer George Paz said that "eliminating Walgreens from our network was better-received, quite frankly, than even we expected and the clients had virtually no disruption."

Clients, Paz said, are "looking to spend money where it matters and not to spend money where it doesn't matter." Express Scripts' clients include employers and health plans.

Paz also said very few of Medco's clients had a change-of-control provision in their contracts that would allow them to leave Express Scripts due to the merger.

Vendetti said Paz's comments "placated fears that maybe they could lose a lot of the Medco business."

Express Shares had fallen slightly in after-hours trading on Thursday night, as the company's full-year profit forecast initially appeared disappointing.

The company forecast 2012 earnings in a range of $3.36 to $3.66 per share, excluding items, while analysts, on average, had been looking for $3.63, according to Thomson Global Markets I/B/E/S.

But after digesting the outlook, analysts noted that items not crucial to the company's performance - such as a high share count and tax rate - brought down the profit range.

"Adjusting for the higher-than-expected share count and tax rate, our previous estimate would have fallen right at the midpoint of management's guidance," Oppenheimer & Co analyst Bret Jones said in a research note.

Express Scripts shares were up 3.6 percent at $56.27 in midday trading on the Nasdaq.

(Reporting By Lewis Krauskopf in New York; editing by Matthew Lewis)

McDermott shares jump on strong profit

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U.S. engineering firms have gained from a rise in orders as more energy and mining companies sought their services, driven by higher demand for commodities.

Brokerage firm William Blair said it was encouraged by McDermott's return to a more normal level of profitability, generating a strong growth in operating margin.

However, it said with less than $1 billion of backlog expected to be recognized in 2013, earnings forecast for next year could be at risk.

The company's backlog for the first quarter was $5.8 billion, up 21 percent. Quarterly bookings came in at $2.65 billion.

McDermott's first-quarter profit comfortably beat estimates.

Shares of the company, which have lost about 58 percent of their value over the last one year, were up $1.47 at $11.37 on Friday on the New York Stock Exchange.

(Reporting by Durba Ghosh in Bangalore; Editing by Gopakumar Warrier)

JPMorgan $2 billion loss hits shares, credit, image

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The loss by one of Wall Street's most respected banks embarrassed chief executive Jamie Dimon, a leader lauded for steering his bank through the fallout from the 2008 financial crisis without reporting a loss.

"We know we were sloppy. We know we were stupid. We know there was bad judgment," Dimon said in an interview with NBC television to be broadcast on "Meet the Press" on Sunday.

He said it wasn't clear whether the bank had broken any laws or violated any rules. "We've had audit, legal, risk, compliance, some of our best people looking at all of that."

The loss also invited regulatory scrutiny for a man who had all but led the charge to limit it, criticizing the so-called Volcker rule to ban proprietary trading by big banks.

The New York Times reported that the Securities and Exchange Commission has opened a preliminary investigation into JPMorgan's accounting practices and public disclosures about the trading loss.

On Friday, Securities and Exchange Commission Chairman Mary Schapiro told reporters: "It's safe to say that all the regulators are focused on this."

The debacle sparked new fears about big banks and prompted Dallas Federal Reserve Bank President Richard Fisher, who has called for the breakup of the top five U.S. banks, to say he is worried the biggest banks do not have adequate risk management.

The fallout extended across much of the banking sector, with shares of some of Wall Street's top names declining on Friday. Among others, Citigroup dropped 4.2 percent, Goldman Sachs fell 3.9 percent and Bank of America slipped 1.9 percent.

JPMorgan was far away the worst performer, however, falling 9.3 percent on a day when some 212 million of its shares traded, the most volume in its history.

Fitch Ratings cut JPMorgan's debt ratings a notch and put all of the ratings of the bank and its subsidiaries on negative ratings watch.

While Fitch saw the size of the loss as manageable, "the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity," the ratings agency said.

"Fitch believes the potential reputational risk and risk governance issues raised at JPM are no longer consistent with an 'AA-' rating," it said.

Standard & Poor's put JPMorgan and its banking units on a negative outlook, but affirmed its current ratings.

In a conference call disclosing the problem on Thursday, Dimon said the $2 billion in losses could rise by a further $1 billion, and acknowledged they were linked to a London-based credit trader Bruno Iksil. Nicknamed the 'London Whale,' Iksil amassed an outsized position which hedge funds bet against.

The Federal Reserve Bank of New York, meanwhile, had been aware of JPMorgan's big trading loss and is currently monitoring the situation, according to a source close to the situation.

The Fed, which is JPMorgan's primary regulator, aims to ensure banks are sufficiently capitalized to withstand such trading mistakes, not to prevent them, the source said.

'STAKES ARE TOO HIGH'

The exact nature of the trading loss is still unclear, although sources said a host of asset managers, arbitrageurs and hedge funds were on the other side of the bet, viewing it as good value and a effective way to insure portions of their portfolio.

Blue Mountain, a hedge fund with offices in New York and London, was among those on the other side of JPMorgan's trade, according to two people familiar with the situation.

Dimon will undoubtedly be pressed by investors for more details about what exactly went wrong when he hosts the bank's annual shareholder meeting on Tuesday in Tampa, Florida.

A national union on Friday urged shareholders to approve a stockholder resolution calling for an independent board chairman at JPMorgan. Dimon currently holds the chairman and CEO titles.

"The stakes are too high to leave Jamie Dimon unsupervised," said Gerald McEntee, president of the American Federation of State, County & Municipal Employees, which sponsored the proposal. "Dimon denied that the ‘London Whale' was making risky bets, and now that this has turned out to be a fish story, shareholders need to step in."

Dimon had parlayed his bank's reputation as a white knight during the financial crisis into a position as the de facto representative fighting against excessive post-crisis regulation.

"What concerns me is risk management, size, scope," said Dallas Federal Reserve Bank's Fisher answer to a question about JPMorgan's trading loss. "At what point do you get to the point that you don't know what's going on underneath you? That's the point where you've got too big."

The trader at the center of the storm, Iksil, who graduated in engineering from the Ecole Centrale in Paris in 1991, was not available for comment. The Frenchman, and the Chief Investment Office (CIO) where he works, are known by rival credit traders for taking extremely large positions.

Friends, colleagues and fellow traders describe an unassuming man, a far cry from the brash image normally associated with traders staking huge bets in fast-moving financial markets, including derivatives.

"He's a really nice bloke. A quiet bloke. He's not an arrogant trader, he's quite the opposite. He's very charming," one former colleague at JPMorgan said of Iksil, whom he said was married with "a couple of kids".

JPMorgan characterized the costly trading strategy that led to the loss as a hedge, rather than as proprietary trade, or a bet with the bank's own money. But that line has been difficult for regulators and experts to define as they seek to craft the Volcker rule.

One friend and former JPMorgan colleague said Iksil and the team were not carrying out proprietary trading in disguise, and that the unit's activities were known at the highest levels of the bank.

"The CIO does not do prop trading, let's be clear on that ... It involves taking positions in the form of investments, trades, credit-default swaps, or other, with the aim of rebalancing the risks of JPMorgan's balance sheet.

"The information comes from the very top of the bank and I do not even think that the CIO team members at Bruno's level are given the full picture," the ex-colleague said.

Iksil was brought into the CIO unit to head its credit desk, an asset class it had not previously covered, a person who worked in the unit said. It built up large credit positions over several years through trades which were vetted by management and the losses now likely resulted from a combination of these trades going wrong, the person said.

The CIO desk had grown rapidly in the past five years and was given free range to trade in a whole range of financial products, the only exception being commodities, they added. The CIO is run by New York-based Ina Drew, who is Chief Investment Officer.

Credit market traders said other banks have comparable functions to JPMorgan's CIO. The French banks, Citigroup, Deutsche Bank and UBS were all cited as examples of large treasury functions that hedge credit exposures in similar ways.

"The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today," U.S. Representative Barney Frank said in a statement.

The Democrat co-authored the 2010 Dodd-Frank financial reform law designed to avoid a repeat of the recent credit crisis.

(Reporting by David Henry in NEW YORK, Rick Rothacker in CHARLOTTE, North Carolina, Dave Clarke in WASHINGTON, Svea Herbst-Bayliss in BOSTON and Vidya Ranganathan in SINGAPORE, Douwe Miedema, Sinead Cruise and Christopher Whittall in LONDON, Lionel Laurent in PARIS; Writing by Alexander Smith and Paul Thomasch; Editing by Alwyn Scott, Jon Boyle, Tim Dobbyn, Gary Hill)

Arena shares soar as experts recommend approval for obesity drug

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Arena's lorcaserin is one of the three obesity treatments that are currently trying to win approval from the Food and Drug Administration (FDA) to enter a potentially huge market, given the country's growing obesity epidemic.

Leerink Swann analyst Steve Yoo said he expects the drug to win regulatory approval and upgraded the stock to "outperform" from "market perform."

The company's shares rose 70 percent to $6.17 in morning trade on the Nasdaq. The stock touched an eighteen-month high of $7.02 earlier in the session.

Shares of rivals Vivus Inc (VVUS.O) and Orexigen Therapeutics Inc (OREX.O), which also have obesity drugs in the pipeline, were also up.

"Vivus' Qnexa will likely remain the obesity therapy of choice due to its efficacy and be first to market," Leerink's Yoo said.

"Orexigen's Contrave will not reach the market until 2015 timeframe so we do not expect the FDA advisory panel vote to impact the outlook for Orexigen much," Yoo added in a research note.

All three companies have been running the obesity race for several years and have faced rejections from the FDA on safety grounds.

However, during the advisory committee meeting on Thursday, independent advisors to the FDA said the concerns about side effects of lorcaserin, especially uncertainty about heart valve problems, could be addressed in post-approval studies.

(Reporting by Esha Dey in Bangalore; Editing by Sreejiraj Eluvangal)

AVG Tech shares rise on strong results, outlook

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First-quarter revenue rose 37 percent to $83 million, helped by higher sales at its platform-derived segment.

Analysts expected revenue of $76.7 million, according to Thomson Global Markets I/B/E/S.

The company, which went public in February, also forecast second-quarter and full-year ahead of expectations.

AVG, which is known for its free suite of anti-virus products, monetizes its large user base through targeted advertisements and by driving traffic to online search companies such as Google Inc (GOOG.O) and Yahoo Inc (YHOO.O).

AVG shares, which have fallen 20 percent until Thursday's close, were trading up 9 percent at $13.88 on Friday on the New York Stock Exchange. They touched a high of $14.47 earlier.

(Reporting by Himank Sharma in Bangalore; Editing by Sriraj Kalluvila)

Sony slides to three-decade low on strategy doubts

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The last time Sony shares were this low, in the summer of 1980, its first Walkman portable cassette player had just gone on sale in the United States. So far this year, Sony has seen more than $3 billion wiped off its market value.

The maker of Bravia TVs, Vaio laptops and PlayStation games consoles on Thursday posted a record annual loss of $5.7 billion, but forecast a first profit in five years as it looks to halve losses at its ailing TV business. The net profit forecast was below analysts' expectations.

Japanese firms, which long dominated the global TV industry, have been overtaken by Samsung and LG Electronics, which are rolling out next-generation sets using organic light emitting display (OLED), in a reshaping of Asia's flat panel sector. A stronger yen, which erodes the value of exports, has also not helped.

"(In the past) if you wanted a top quality TV you had to buy a Sharp, Panasonic or Sony. Those days are gone," Steve Durose, Senior Director and Head of Asia-Pacific at Fitch Ratings, told Global Markets last month.

"I didn't see anything positive in there (Sony's results)," said a trader at a U.S. bank. "There's really nothing in there that can justify buying the stock. You see the loss narrowing in the TV business. That's fine, but I don't see any future in the TV business, so it doesn't matter what they do."

Shares of Panasonic Corp, which makes Viera TVs, also fell, 1.6 percent, to their lowest close in more than three decades. After the market closed, Panasonic also posted a record annual loss, of $9.7 billion, and predicted a return to profit this year after a heavy bout of cost-cutting and restructuring.

Sharp Corp, Japan's other main TV manufacturer, fell 5.1 percent to its lowest close since November 1979.

TOO OPTIMISTIC?

Analysts said the Sony results were largely neutral while its forecasts looked too optimistic.

"We see no catalyst that might spur a sustained (share) rally," Deutsche Bank analyst Yasuo Nakane wrote in a note.

Shiro Mikoshiba, Nomura Equity Research analyst, wrote: "We still regard downsizing and product strategies worthy of the Sony brand as indispensable preconditions of any share price upside."

While Mikoshiba sees a sharp profit rebound towards the end of this calendar year, "uncertainty surrounding sales of core products, including TVs, smartphones and digital cameras (means) we're unable to pin down a turning point for the share price."

Sony's new CEO Kazuo Hirai has said Sony will sell more than 33 million smartphones this business year, up from 22.5 million last year, and will more than double sales of its portable game players, including the PlayStation Vita, to 16 million. Analysts, though, point to weak demand for game players in major markets and fierce competition in smartphones.

"In our view, guidance for profit improvement in digital cameras, games, li-ion batteries and smartphones looks optimistic and we see downside risk," Goldman Sachs analysts wrote in a client note, keeping their 'sell' rating on the stock. "We think TV losses may be smaller than the company forecasts ... but we see significant downside risk to overall guidance."

The U.S. bank trader said Sony's forecast of 33 million smartphone shipments in the year to next March looked optimistic given that its supplier, Qualcomm, faced capacity constraints and the firm's priority is to supply Apple, which could leave Sony without enough smartphone chips to meet its target.

Sony carried a 12-month forward price-to-book ratio of 0.56, slightly below Panasonic's 0.64 and Sharp's 0.67, Datastream data showed - all way below the electronics sector's 1.08.

(Editing by Edwina Gibbs and Ian Geoghegan)

Nvidia revenue, outlook beat Street; shares jump

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The chipmaker reported strong demand for its newly launched chips for desktop computers and contract wins for its Tegra smartphone chips but said revenue and profit is still being limited by supply constraints and macro economic issues.

The revenue surprise came off very low expectations as Nvidia had warned in February of weak sales linked to capacity constraints and new competition in cellphone chips as a big customer became a competitor.

"There was a lot of fears going into the call that supply constraints would continue to be an issue. It wasn't was bad as feared," said Pacific Crest analyst Michael McConnell.

However, the analyst said even though Nvidia was seeing good demand from its phone and computer customers, it was not clear that consumer demand would be strong.

"Now the question is if people show up at the stores and buy these things," he said.

The company's shares rose $1.14 to $13.56 in morning trade on Nasdaq, but were still well below their $16.17 close before the February warning.

Nvidia has invested heavily to move beyond its traditional business of designing graphics chips for PCs, by expanding into the market for mobile device chips.

On top of supply constraints Nvidia also faces tough competition from the likes of chip developers Qualcomm Inc and Intel Corp.

Also top phone maker Samsung Electronics Co. depends increasingly on its own chips instead of Nvidia's and Apple Inc uses custom-designed chips in the iPhone.

SUPPLY CONSTRAINTS

The company told analysts on a conference call that margins and revenue are being hurt by a capacity shortage for its cutting edge 28 nanometer computer graphics chips. Rivals such as Qualcomm have also complained of shortages in this area.

"Supply is still constrained," a company executive told analysts, noting that Nvidia and its manufacturing partner TSMC had not planned for enough 28 nanometer capacity.

The company said it was missing out on "a lot" of sales because of the manufacturing capacity constraints but did not give specifics.

Nvidia forecast second-quarter revenue of $990 million to $1.05 billion, compared with analysts' average estimate of $976.2 million, according to Thomson Global Markets I/B/E/S.

First-quarter revenue fell to $924.9 from $962 million a year earlier but was better than Wall Street expectations for $916 million.

First-quarter net income was $60.4 million, or 10 cents a share, compared with $135.2 million, or 22 cents a share, in the year-earlier quarter, in line with expectations.

It forecast a second-quarter gross margin of 51.2 percent, plus or minus one percentage point, compared with 50.1 percent in the first quarter.

It said expenses would rise to $418 million in the second quarter from $390.5 million in the first quarter.

(Reporting By Sinead Carew and Noel Randewich; Editing by Gerald E. McCormick, John Wallace and M.D. Golan)

A123 Systems to post $125 million first-quarter loss after recall

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A123 also lowered its 2012 revenue outlook to a range of $145 million to $175 million from a previous forecast of $230 million to $300 million, also due to the recall issue.

Much of the production that would have generated revenue this year will be diverted to replace the possibly defective battery modules and packs, A123 said in a filing on Friday with the U.S. Securities and Exchange Commission.

But A123 also said it is not experiencing a drop in demand from its customers, so "we anticipate that most of the revenue corresponding to our reduced guidance will be shifted into 2013."

The company, which received a $249 million grant from the Obama administration as part of a program to develop advanced batteries, said the cost of recalling the battery packs will be $66.8 million.

The quarterly loss is due to the recall campaign and "low factory utilization" of A123's plant in suburban Detroit that the 2009 U.S. Energy Department grant helped pay for.

The expected $125 million net loss would be 133 percent wider than in the first quarter of 2011. That would eclipse A123's previous record loss of $85 million in the fourth quarter 2011, when its revenue was $40.4 million.

A123, which developed as a start-up at the Massachusetts Institute of Technology, said it expects first-quarter revenue of $10.9 million, 40 percent less than a year earlier.

A spokesman for the company declined to comment beyond the SEC filing. More details about the company will be revealed on May 15, when A123 issues fuller financial results on a conference call, the spokesman said.

The low plant use, A123 told the SEC, "also contributed to significantly reduced gross margins on products sold, as anticipated cost savings related to volume production were not realized."

Research and development and engineering expenses associated with hiring new employees also contributed to the loss, A123 said.

In late March, A123 announced it was replacing battery modules and battery packs that could fail due to a manufacturing defect, which led to a high-profile shutdown of a Fisker Karma electric car while it was being tested by consumer watchdog Consumer Reports.

Privately held Fisker is a key customer for A123.

Last November, A123 cut 35 percent of the workers at its Livonia plant due to a drop in Fisker orders.

The Livonia plant was described as the largest lithium-ion factory in North America when it opened in September 2010 with a ribbon-cutting ceremony attended by U.S. Energy Secretary Steven Chu as well as U.S. Senators Debbie Stabenow and Carl Levin from Michigan. President Obama called in for the event and was shown on a large video screen.

Among A123's automotive customers are General Motors Co (GM.N), BMW (BMWG.DE), SAIC Motor Corp (600104.SS), Tata Motors (TAMO.NS), and commercial vehicle maker Smith Electric Vehicles (SMITH.O) based in Kansas City, Missouri.

PepsiCo's (PEP.N) Frito-Lay North America division announced on Thursday that it would buy 100 electric vehicles from Smith Electric Vehicles, bringing to 280 the number of electric vehicles in its fleet. The battery packs for the Smith vehicles will be produced by A123.

A123 customers also include major U.S. utility companies in its power grid division.

A123 said it was expected to show a loss of $51.6 million in warranty expenses from replacing battery packs and modules in the recall campaign for product already in the field. Also, it was expected to show a cost of about $15.2 million to replace batteries that had been in inventory but not yet shipped.

A123 shares fell 8 percent to $1.03 on Nasdaq.

(Reporting by Bernie Woodall in Detroit; editing by Jeffrey Benkoe, M.D. Golan and Richard Chang)

Leap Wireless shares rise on talk of AT&T deal

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In recent months, AT&T (T.N) has held talks to buy smaller rival Leap Wireless International (LEAP.O), people familiar with the matter told Global Markets.

Analysts said that the story had led investors to push up the company's share price, but some questioned whether such a deal would make sense for AT&T from the point of view of cost and regulatory scrutiny.

"If AT&T was to look at Leap it would be (for) the spectrum" said BTIG analyst Walter Piecyk, but he worried that such a deal would be too expensive when compared with the $3.9 billion that market leader Verizon Wireless agreed to pay for spectrum owned by cable operators.

Leap Wireless, which focuses on pre-paid wireless services, has a market value of more than $400 million and $3.2 billion of long-term debt.

On top of price, Piecyk said, AT&T should worry about regulatory approval of such a deal since the U.S. government last year blocked its $39 billion plan to buy smaller rival T-Mobile USA.

"If you're AT&T and you were just slapped back by the Federal Communications Commission and the Justice Department on T-Mobile USA would you try again so soon and would you waste a bullet on Leap when they don't have spectrum in the markets where AT&T needs it most?" Piecyk said, referring to such major markets as New York and San Francisco.

Leap shares were up 59 cents, or 11 percent, at $5.95 on the Nasdaq in early afternoon trade.

(Reporting By Sinead Carew)