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Metro PCS Proposal to Buy Leap Wireless Appears to Be Off the Table

The merger of two small cellular carriers appears to be dead in the water following pronouncements by the two companies last week.

On Nov. 2, MetroPCS Communications, a Dallas carrier that offers single-rate, advance-payment service, said it was withdrawing its $4.7 billion bid to buy rival carrier, San Diego-based Leap Wireless International Inc., which uses the same business model for its Cricket Communications unit and targets similar younger and lower-income customers. Neither carrier requires new customers to sign lengthy contracts.

MetroPCS made the offer in September, which would have exchanged 2.75 shares of stock for each Leap share. Leap’s top executives reacted to the offer as if they were insulted. In truth, the offer did appear low, since it was only 3 percent above the stock’s market price at the time.

MetroPCS’ offer also involved assuming Leap’s outstanding debt of about $2 billion.

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The proposed marriage looked good on paper because of the companies’ similar business models, and the fact that the two companies’ markets don’t overlap, which could generate better profit margins.

In its latest regulatory filing, MetroPCS said “it has not been able to engage Leap in meaningful negotiations” since it initially made its offer.

That makes little sense considering how cheaply MetroPCS was trying to buy Leap, and that the company didn’t come back with a better bid.

In a Nov. 1 response to MetroPCS’ withdrawal, Leap appeared to have kept the door open by saying there may be merit in a strategic combination in the future, and that it remained open to discussions “in the best interest of all of Leap’s shareholders.”

Reading between the lines, if MetroPCS increases its bid, Leap may be more inclined to talk.

In the meantime, shares of Leap, traded on Nasdaq under LEAP, have taken a fall since the company hit a high in July of $99, which analysts ascribed to the overall rise in the stock market and meeting financial forecasts. The stock did get a bounce in September when the MetroPCS offer was revealed, but shares have fallen more than 10 points over the month, and closed Nov. 5 at $64.01. That fact certainly doesn’t help Leap’s case, but at this point it looks like neither company is willing to compromise.

Though it’s been in retreat, LEAP shares are still doing relatively better than many other local stocks, and have appreciated 16 percent over the past 52 weeks.

MetroPCS is the larger entity, with about 3.5 million customers to Leap’s 2.7 million. The former had trailing 12-month revenue of about $2 billion, while Leap’s was $1.4 billion.

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Visual Sciences To Be Sold:

The market apparently likes the planned combination of Web analytics companies Visual Sciences and Utah-based Omniture Inc., which signed an agreement last month to acquire the former for $394 million in stock and cash.

After the transaction was announced, shares of Omniture rose more than $4 and Visual Sciences increased by more than $2.

Under the agreement, shareholders of Visual Sciences get $2.39 in cash per share plus a fixed exchange ratio of 0.49 shares of Omniture stock for each share of Visual Sciences.

At the time the deal was announced, Visual Sciences shareholders stood to receive $18.04 per share for their stock, but as of Nov. 5 because of Omniture’s gains, each Visual Science share will get $19.67.

Visual Sciences has 262 employees, including 135 in San Diego.

Visual Sciences, traded on Nasdaq under VSCN and formerly known as WebSideStory, has a 52-week trading range from $10.44 to $19.86. Omniture, traded on Nasdaq under OMTR, has an even greater price disparity over the past year, from $9.40 to $38.57. It closed Nov. 5 at $35.26.

The acquisition came as little surprise, since Visual Sciences said in July it had hired investment house Goldman, Sachs & Co. to find the best offer among a number of unsolicited proposals.

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Axesstel Sees Drop In Sales And Makes Cuts:

Axesstel Inc., a local maker of fixed wireless phone networks, mainly for the Third World, said sales for the third quarter will be about half, or $15.4 million, of the $28 million in sales in the second quarter.

The company said its business in Asia has been marked by “intense price competition with low profit margin.” It is also experiencing shipping delays for some products.

The company revised its guidance for the year, and now expects revenue between $85 million and $90 million. It also forecast 2008 revenue from $100 million to $115 million.

To improve margins and profits, Axesstel is changing its design and manufacturing by outsourcing parts of these operations. The firm, which had a total of 87 staffers as of last December, didn’t say how many employees it would cut.

As of Nov. 5, Axesstel, traded on the American Stock Exchange under AFT, was at 70 cents, and has ranged from 51 cents to $2.58 over the past 52 weeks.

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Overland Still Losing Money, But More Slowly:

Overland Storage, the San Diego data backup and storage firm, reported a net loss of $4.5 million for its fiscal first quarter that ended Sept. 30 on revenue of $32.9 million.

That compared to a net loss of $20 million on revenue of $41.8 million for the like first quarter of the prior year.

The company noted its largest customer, Hewlett-Packard Co., had reduced its buying by 45 percent.

The loss in the 2007 first quarter was also affected by an $8.4 million charge on impaired technology it acquired.

Recently appointed CEO Vern LoForti, the company’s former CFO, said while he was disappointed with revenue declines from the fourth quarter, he was encouraged by sales increases in both Europe and in the Americas.

Traded on Nasdaq under OVRL, shares closed Nov. 5 at $1.84, but were above $2 after the quarterly results were announced Oct. 30. The 52-week range was between $1.60 and $5.08.

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Maxwell Seeking Sales in Auto Market:

Maxwell Technologies Inc., the local maker of ultracapacitors, or electric power storage and delivery systems used in industrial equipment, is trying to sell more product to the auto industry, especially companies making hybrid vehicles.

At the release of Maxwell’s third-quarter results Oct. 30, CEO David Schramm said, “Longer term, we continue to believe that automotive applications, both in managing increasing demands on the electrical system and in various hybrid vehicle configurations, represent the largest market opportunity for ultracapacitors, and we continue to devote significant energy and resources to collaborative development programs with automakers and Tier 1 automotive suppliers.”

As an example, Maxwell recently struck a deal with Mercedes Car Group to design and produce ultracapacitors for an advanced engineering hybrid-electric drive train program.

While future prospects sound promising, recent results (from a shareholder point of view) have been dismal.

For the third quarter, Maxwell reported a net loss of $2.6 million on revenue of $14.2 million. That compared to a net loss of $5.4 million on revenue of $14 million for the prior year’s third quarter.

For the nine months, Maxwell reported a net loss of $14.6 million on revenue of $40.4 million, compared to a net loss of $17.1 million on revenue of $38.7 million in the like period of 2006.

Traded on Nasdaq under MXWL, shares closed at $10.01 on Nov. 5, and have ranged from $9.80 to $16.50 over the past 52 weeks.

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Ticker Takes:

ViaSat Inc.. reported net income of $8.6 million on revenue of $146.6 million for its fiscal year second quarter, with earnings beating analysts’ forecasts Javo Beverage Co.. said its third-quarter sales increased 70 percent from the like quarter of 2006 to $3.9 million, and nine months sales jumped 26 percent to $9.8 million over the same period Accelrys Inc. reported net income of $1.6 million on revenue of $19.7 million for the quarter ended Sept. 30, compared to net income of $935,000 on revenue of 20.2 million for the like period of 2006 Bakbone Software Inc. said quarterly bookings were $13.5 million, up 9.2 percent from the like quarter of the prior fiscal year Document Sciences Corp. reported a net loss of $531,000 for the nine months ended Sept. 30, on revenue of $30 million. That compared to a net loss of $200,000 on revenue of $24.6 million for the like period of 2006.


Send any news of local public companies to Mike Allen via e-mail at

mallen@sdbj.com

. He can also be reached at (858) 277-6359.

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