Sprint buying Virgin Mobile USA for $483M

Sprint Nextel will acquire Virgin Mobile USA, which currently operates as an MVNO on Sprint's network, for around $483 million in a deal that crystallizes Sprint's commitment to prepaid. The value of the deal includes Sprint's 13.1 percent ownership stake in Virgin Mobile. Additionally, Sprint will retire all of Virgin Mobile's debt at the close of the deal.

Under the terms of the deal, Virgin Mobile and Sprint's prepaid Boost Mobile brand will be brought under one prepaid business group in Sprint's organization, although they will each continue to serve existing and new customers following the close of the deal. Virgin Mobile CEO Dan Schulman will lead Sprint's prepaid business after the transaction closes, and will be responsible for the prepaid segment's growth and business strategy. Matt Carter will continue to run Boost Mobile and will report to Schulman.

Sprint has recently crowed about how popular its Boost prepaid service has been, and said the deal would strengthen its position in the prepaid market. Boost began offering unlimited voice, text messages, mobile Web access and Nextel walkie-talkie service in January for $50. In the first quarter, the unit, which runs on Sprint's iDEN network, garnered 764,000 net prepaid iDEN subscribers. Meanwhile, Sprint lost 1.25 million postpaid customers in the quarter. Sprint ended the first quarter with a total of 49.1 million subscribers on its networks, a number that includes Virgin Mobile's 5.2 million subscribers.

In April, Virgin Mobile slashed the price of its unlimited calling plan from $80 to $50, putting it into more direct competition with Boost and other prepaid providers such as MetroPCS.

"This is a good transaction for Sprint, which already owns 13 percent of Virgin, because it provides 5 million customers which are already using its own network. This more than doubles the size of Sprint's prepaid business overnight and increases its distribution channels quickly for prepaid where it has had recent success with Boost Unlimited," wrote Walter Piecyk of Pali Research, noting that the transaction values each Virgin subscriber at $130, which the firm said is slightly above what it costs Virgin Mobile to acquire a customer.

"We believe Virgin Mobile felt compelled to sell because its customer base was declining, the prepaid space is getting much more competitive and it faced a $100 million debt maturity at the end of next year that we do not believe it had enough free cash flow to pay-off," Piecyk wrote. "Virgin was selling an uncompetitive unlimited offering right next to Boost Unlimited in its own stores which we believe will either be terminated or brought to parity with Boost Unlimited. We think it's more likely that Virgin terminates its unlimited offerings and returns its focus to its legacy pay as you go model."

In announcing the deal, the two companies said they expected "synergies" from "general and administrative reductions, operational efficiencies and streamlined distribution." However, a Sprint spokeswoman told FierceWireless it was too early to comment on specific job cuts that might be made as a result of the deal.

Virgin Mobile shareholders will receive Sprint shares with a price equivalent to $5.50 per Virgin Mobile share, which represents a 31 percent premium on Virgin Mobile's closing price of $4.21 on Monday. The transaction is expected to be completed in the fourth quarter of 2009 or in early 2010.

For more:
- see this release [1]