Sprint have announced that they are acquiring Virgin Mobile USA for $483m, bringing the pre-pay MVNO under the Sprint umbrella but maintaining it as a separate brand. Virgin Mobile USA uses Sprint’s CDMA network for its access, and will join Boost Mobile as Sprint’s key entry-level line-up.
As part of the deal, Sprint will pay off all of Virgin Mobile USA’s outstanding debt, which is expected to amount to around $205m. The acquisition will not, however, net them ownership of the Virgin Mobile USA brand; this will continue to be licensed from the Virgin Group at a cost of $12.7m for the period from now until December 31st 2021.
Virgin Mobile USA was the final remaining significant MVNO operating in the US. The company acquired CDMA rival Helio back in June 2008.
Sprint Nextel To Acquire Virgin Mobile USA
Strengthens Company’s Prepaid Position in Wireless Market with Iconic Consumer Brand
Public Shareholders to Receive $5.50 per Share
OVERLAND PARK, Kan. & WARREN, N.J.–(BUSINESS WIRE)–Jul. 28, 2009– Sprint Nextel Corporation (NYSE:S) and Virgin Mobile USA, Inc., (NYSE:VM) announced today that their boards of directors have approved a definitive agreement for Sprint to acquire Virgin Mobile USA for a total equity value of approximately $483 million, which includes the value of Sprint’s current 13.1% fully diluted ownership interest in Virgin Mobile USA. In addition, at closing Sprint will retire all of Virgin Mobile USA’s outstanding debt, which is $248 million net of cash and cash equivalents as of March 31, 2009, but is expected to be no more than $205 million net of cash and cash equivalents on Sept. 30, 2009.
This acquisition will strengthen Sprint’s position in the growing prepaid segment by bringing together under one umbrella the iconic Virgin Mobile brand with Sprint’s successful Boost Mobile business. These complementary prepaid brands, each with a distinctive offer, style and appeal to different customer demographics, will continue to serve existing and prospective customers following the completion of the transaction.
Following the closing of the transaction, Sprint’s prepaid business will be led by Dan Schulman, current Virgin Mobile USA chief executive officer, who will report directly to Dan Hesse, Sprint Nextel president and chief executive officer. Bringing exceptional telecom leadership credentials to Sprint, Schulman will be responsible for the business strategy and growth of the prepaid segment. Matt Carter will continue to lead Boost Mobile and will report to Schulman.
“The acquisition of Virgin Mobile USA positions Sprint for even greater success in the prepaid wireless segment,” said Hesse. “Prepaid is growing at an unprecedented rate with consumers keenly focused on value. Virgin Mobile is an iconic brand in the marketplace that will complement our Boost Mobile brand.”
“I have known Dan Schulman for many years, and I feel very fortunate that a leader with Dan’s talents is joining Sprint to take us to even greater heights in prepaid,” added Hesse.
“Virgin Mobile USA redefined the U.S. prepaid segment when we launched seven years ago,” said Schulman. “Sprint is committed to growing its prepaid business and this transaction will provide us with the resources and opportunities to compete more aggressively, and strengthen our position in prepaid.”
Strengthens Sprint’s position in the fast growing prepaid segment.
Enhances cross selling of full suite of Sprint products and services across a larger target audience.
Free cash flow accretive for Sprint before synergies.
Synergies to be derived from general and administrative reductions, operational efficiencies, and streamlined distribution.
Sprint gains deeper managerial talent with additional expertise in the prepaid segment.
Terms of the Transaction
Under the terms of the agreement, Virgin Mobile USA stockholders will receive shares of common stock of Sprint based on the exchange ratios described in more detail below, and cash in lieu of fractional shares.
Virgin Mobile USA Public Stockholders:
Each public stockholder, holding in aggregate approximately 39.7 million shares on a fully diluted basis or 43.3% ownership, will receive Sprint shares having a 10-day average closing price equivalent to $5.50 per Virgin Mobile USA share, subject to the collar referenced below.
The exchange ratio for public stockholders will be based on Sprint’s 10-day average closing share price ending two trading days prior to closing.
The exchange ratio will be subject to a collar such that in no event will the exchange ratio be lower than 1.0630 or higher than 1.3668.
The Virgin Group:
The exchange ratio for the Virgin Group will in all circumstances be equal to 93.09% of the exchange ratio for the public stockholders equating generally to $5.12 per Virgin Mobile USA share for common stock owned by the Virgin Group (including shares into which preferred stock held by it is convertible.)
Preferred shares owned by Virgin Group will be converted into common stock based on the Virgin Group exchange ratio at a conversion price of $8.50.
Virgin Group owns approximately 26.0 million shares on a fully diluted basis or 28.3% ownership, of Virgin Mobile USA.
The exchange ratio for the SK Telecom will in all circumstances be equal to 89.84% of the exchange ratio for the public stockholders, equating generally to $4.94 per Virgin Mobile USA share for common stock owned by SK Telecom (including shares into which preferred stock held by it is convertible.)
Preferred shares owned by SK Telecom will be converted into common stock based on the SK Telecom exchange ratio at a conversion price of $8.50.
SK Telecom owns approximately 14.0 million shares on a fully diluted basis or 15.3% ownership, of Virgin Mobile USA.
Based on the terms of the agreement, Sprint currently expects to issue between 81.4 million and 104.7 million shares of its common stock in exchange for all Virgin Mobile USA common stock, excluding Sprint’s 13.1% stake, and all Virgin Mobile USA preferred stock.
Following the closing of the transaction, Virgin Mobile USA will continue to license the Virgin Mobile USA brand from the Virgin Group under the terms of an amended and restated Trademark License Agreement. Sprint will pay $12.7 million for the initial term, which will continue through the end of 2021. The agreement contains several renewal provisions that will allow Virgin Mobile USA to extend the term until 2047.
Sprint will pay Virgin Group approximately $50 million at closing as payment in full for net operating losses available to be utilized by Virgin Mobile USA in the future under the Tax Receivable Agreement.
All of Virgin Mobile USA’s outstanding debt will be retired at the closing of the transaction including amounts due under the Senior Secured Credit Facility and the Related Party Subordinated Secured Revolving Credit Agreements.
The payments at the closing of the transaction for the Trademark License Agreement, the Tax Receivable Agreement and Virgin Mobile USA’s subordinated debt will be made either in cash or stock, at Sprint’s option.
The transaction is subject to various closing conditions, including the approval of the transaction agreement by Virgin Mobile USA’s stockholders, the receipt of applicable regulatory approvals, and other customary closing conditions. The Virgin Group and SK Telecom have agreed to vote a portion of the Virgin Mobile USA voting shares owned by them that, when aggregated with the voting shares owned by Sprint, comprise approximately 40% of the outstanding voting power. The transaction is expected to be completed in the fourth quarter of 2009 or in early 2010.
Sprint was advised by Wells Fargo Securities and King & Spalding. Deutsche Bank Securities Inc., Colonnade Advisors LLC and Foros Advisors LLC are acting as financial advisors to an independent special committee of the Board of Directors of Virgin Mobile and Deutsche Bank Securities Inc. also has provided a fairness opinion to the committee. Virgin Mobile USA was also advised by Simpson Thacher & Bartlett LLP.
About Sprint Nextel
Sprint Nextel offers a comprehensive range of wireless and wireline communications services bringing the freedom of mobility to consumers, businesses and government users. Sprint Nextel is widely recognized for developing, engineering and deploying innovative technologies, including two wireless networks serving more than 49 million customers at the end of the fourth quarter 2008; industry-leading mobile data services; instant national and international push-to-talk capabilities; and a global Tier 1 Internet backbone. For more information, visit www.sprint.com.
About Virgin Mobile
Virgin Mobile USA, Inc. [NYSE:VM], through its operating company Virgin Mobile USA, L.P., offers millions of customers control, flexibility and choice through Virgin Mobile’s Plans Without Annual Contracts. Its full slate of smart, stylish and affordable handsets are available at approximately 40,000 top retailers nationwide and online at http://www.virginmobileusa.com/, with Top-Up cards available at almost 150,000 locations.