Under the agreement, AT&T will acquire all of Leap's stock and approximately 5 million subscribers for $15 per share in cash or about $1.2 billion. The offer represents a premium of 88 percent to Leap's Friday closing price of $7.98. As of April 15, Leap had $2.8 billion in debt, the companies said in a statement.
Leap's shares more than doubled to $16.80 in after hour trade after closing at $7.98 on Friday.
The deal is the latest in a series of acquisitions in the wireless industry and follows Softbank's acquisition of Sprint.
As the No. 2 wireless provider in the United States, AT&T has been looking to grow in a mature market and has been urgently seeking access to additional wireless spectrum. It has held talks to buy smaller rival Leap Wireless International last year, Reuters reported.The proliferation of bandwidth-hungry smartphones and tablets has U.S. wireless carriers clambering to gain access to more airwaves. Clearwire was recently part of a tug a war over its valuable spectrum between Sprint and Dish Network Corp.
"Its mostly about the spectrum for AT&T," said Todd Rethemeier, an analyst with Hudson Square Research.
"It's Leap's only alternative. Continuing as an independent company is not a viable option for Leap at this point."
Two years ago, AT&T struck a deal to buy T-Mobile USA for $39 billion, but U.S. regulators blocked the attempt by the No. 2 and No. 4 U.S. wireless carriers to merge.
Based in San Diego, Leap's network covers about 96 million people and operates under the Cricket brand.
AT&T said it will retain the Cricket brand name and expand its presence in the U.S. After the deal closes, AT&T said it plans to use Leap's spectrum in furthering its development of AT&T's 4G LTE network.
The combined company will have the financial resources, scale and spectrum to better compete with other major national providers for customers interested in low-cost prepaid service, the companies said.
Almost a third of Leap's shareholders have voted in favor of the transaction.
At the end the of the first quarter, $19 billion hedge fund Paulson & Co owned 7.8 million shares of Leap Wireless, according to a regulatory filing.
The deal is expected to close in nine months and is subject to regulatory review.
Leap said Lazard served as its sole financial adviser.
© Thomson Reuters 2013