Sprint Nextel and Virgin Mobile USA have said that their boards have approved a definitive agreement, under which Sprint would acquire Virgin Mobile USA for a total equity value of $483m.
In addition, Sprint plans to retire all of Virgin Mobile USA’s outstanding debt, which is expected to be no more than $205m net of cash and cash equivalents, by September 30, 2009.
This acquisition is expected to strengthen Sprint’s position in the growing prepaid segment by bringing together Virgin Mobile’s Iconic brand with Sprint’s Boost Mobile business.
Following the closing of the transaction, Sprint’s prepaid business will be led by current Virgin Mobile USA chief executive officer, Dan Schulman, while Matt Carter will continue to lead Boost Mobile.
Sprint already owns 13% of Virgin Mobile USA and will buy out the major stockholders Virgin Group and the SK Telecom.
Sprint said that the share swap ratio is subject to a collar such that in no event the exchange ratio will be lower than 1.0630 or higher than 1.3668. 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.
Reportedly, the exchange ratio for the Virgin Group, which owns 28.3% of Virgin Mobile USA, will be equal to 93.09% of the exchange ratio for the public stockholders, or $5.12 per Virgin Mobile USA share for common stock owned by the Virgin Group.
The share exchange ratio for SK Telecom, which owns 15.3% of Virgin Mobile USA, will be equal to 89.84% of the exchange ratio for the public stockholders, equating to $4.94 per Virgin Mobile USA share for common stock owned by SK Telecom.
Following the closing of the transaction, Sprint will pay $12.7 million for the initial term, to continue to license the Virgin Mobile USA brand through the end of 2021. The agreement also contains several renewal provisions that will allow Virgin Mobile USA to extend the term until 2047.
Sprint will also pay Virgin Group around $50m for net operating losses available to be utilised by Virgin Mobile USA in future under the Tax Receivable Agreement.
The transaction is expected to be completed in the fourth quarter of 2009 or in early 2010.
