Leading investor Pentwater Capital Management has criticised the board of directors and management of Leap Wireless, the US low-cost operator. It has written an open letter to inform Leap’s board that it will nominate three of its own directors at the operator’s forthcoming annual shareholders meeting. The letter also lists shortcomings in Leap’s recent performance, according to Pentwater. It says that the operator has engaged in “a series of mistakes and missteps that have resulted in the destruction of shareholder value” in recent years. Pentwater cites Leap’s failure to accept rival MetroPCS’ merger proposal in 2007. It claims if half of the potential synergies had been realised from the MetroPCS deal then Leap’s shares would be trading 280 percent higher today rather than being down by more than 80 percent on their 2007 price. The investor also picks out operational errors made by the operator including an emphasis on broadband services offered under the Cricket brand. Also management’s later adoption than rivals of an all-in pricing model (it made the move in August last year) receives criticism. And, Pentwater claims, mishandled handset inventory meant Leap retail outlets did not stock the most desirable handsets.

The effect, says the letter, of these errors was a net loss of 245,000 voice subscribers in the second and third quarters of 2010. However, not mentioned in the letter, Leap managed a turnaround in the fourth quarter of last year with a return to customer growth with 115,000 net additions although financial losses did widen.  Pentwater’s critique also extends to the company’s cost structure. The letter uses a comparison with MetroPCS as a stick to beat Leap: the former had 3,600 employees yet supported a subscriber base of 8.2 million. By comparison, Leap had more employees (4,362) yet lagged its rival on subscribers (5.5 million). Finally, the board’s decision last September to introduce a poison pill limiting shareholder ownership to less than five percent “entrenches management and stifles shareholder voice”. Pentwater owns just under five percent of outstanding shares in Leap. Its own nominees for the board include “two former CEOs of multi-billion dollar telecommunications companies” as well as the CEO of Pentwater Capital