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Sprint buying Virgin Mobile USA for $483M
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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
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More stories about Virgin Mobile Sprint Mergers and Acquisitions Matt Carter Dan Schulman Boost Mobile
Comments
Posted by WilliamC | July 28, 2009 - 11:15am
This should help Sprint out - especially with cash flow. They have good products and need the cash to keep itself afloat. The buildout of Wimax comes with a hefty price tag too. I said it in past comments that Sprint would not be able to sustain its self with the bad economy, perceptions and the Iphone. They needed to make an acquisition in the next couple of years. If they scrap Virgin Mobile and bring them under the Boost name it could be a cash cow for them - the $50 dollar unlimited plan is very enticing to people. Motorola could definately get a lift by supplying more iden phones and hopefully iden smartphones. Why not some - Nokia's??? However the synergies work - Sprint needs to be good to their new employees and make the marriage work when they become a part of the Sprint family....This is good news..P.S.keep working with your low end customers and make an effort to keep all of them. What ever position they are on the ladder in society.......Hopefully, these exclusivity contracts will be scaled back or ended by the FCC!!!
Posted by Anonymous | July 28, 2009 - 8:43pm
I am sure the Sprint executives will get a big bonus for the purchase which would explain the reason why they bought VM in the first place.
Sprint will drive VM into the ground just like they did ION, Nextel, Pivot and Wimax. And just wait until the outsourcing deal with Ericsson blows up in their face.
P.S. TWC to buy Sprint later this year.
Posted by Spawn of some baby bells | July 28, 2009 - 9:45pm
So this is how Sprint spent all the money it saved for outsourcing the Network people? Seriously? They should have bought iPCS instead.
I'm glad Sprint takes the "Pre-Paid" market as a threat, but they should consider themselves the biggest threat to... Well, them selves.
I don't think TWC will buy out Sprint, I'm thinking it will be Comcast.
Posted by Anonymous | July 29, 2009 - 10:51am
4G network for prepaid subscribers? what a remarkable strategy! Where is S headed?
Posted by Anonymous | July 30, 2009 - 10:03am
Virgin Mobile has great pre-paid phone plans. Although the Phones are not all that inclusive of every feature, there are no drop calls. Some of the great features are you can send text messages to land-line phones at no extra cost.
In todays economy, a cell phone is a luxury item. The costly data plans on Cell Phone Services have moved people away from traditional Contract Plans to Prepaid plans that they can manage. Boost Cell Phones provide the best voice quality and sound like wired home Telephone Services. Consumers should have the best of both Worlds inexpensive data charges, and a wide spectrum of communication to Land-line Phones, such as Text Messaging Options to Land-line Phones,with Superior clear Voice quality and no dropped calls. Virgin Mobile also provides Text blocking. Both companies combined should provide a superior low cost prepaid phone service, that can be managed by its consumers.
Posted by SamualY | August 5, 2009 - 11:13am
I don't know why Sprint would want to touch Virgin - It's not as if they're clean and new and well....virginal! Virgin doesn't seem to know which market they are servicing, they started out as an up market brand and are now aiming at the poor, bottom end market. You can now find them on the street corners, if you know what I mean. So if you've got an expensive Virgin phone people are going to think you’re on welfare. At least the other providers stay within their bracket and charge accordingly so people know where they stand.
Posted by jessie | September 4, 2009 - 11:12pm
im kinda excited sprint is buying virgin mobile. i have had sooo many problems with virgin mobile phones like i would get error messages. i bought a phone last week, and it died 3 days ago. and they replaced it. i have had to have a total of 8 phones replaced due to virgin mobiles errors. hopefully when sprint takes over they can make more reliable cell phones.
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