By Lisa Kerner
Charlotte, N.C., July 28 - Sprint Nextel Corp. said it will strengthen its position in the prepaid cell phone calling market with the acquisition of Virgin Mobile USA, Inc.
Both companies' boards of directors approved a definitive agreement in which Sprint will acquire Virgin Mobile for a total equity value of about $483 million, including the value of Sprint's current 13.1% fully diluted ownership interest in Virgin Mobile.
A $14.2 million termination fee is included as part of the merger agreement, according to a form 8-K filed with the Securities and Exchange Commission.
Sprint said it will retire all of Virgin Mobile's outstanding debt, which is expected to be no more than $205 million net of cash and cash equivalents on Sept. 30.
Virgin Mobile stockholders will receive shares of common stock of Sprint based on exchange ratios, with cash paid in lieu of fractional shares.
Exchange ratios determined
According to Sprint, Virgin Mobile public stockholders will receive Sprint shares having a 10-day average closing price equivalent to $5.50 per Virgin Mobile. The exchange ratio will be subject to a collar so that the exchange ratio will not be lower than 1.0630 or higher than 1.3668.
The exchange ratio for Virgin Mobile shares held by the Virgin Group will be equal to 93.09% of the exchange ratio for the public stockholders, or about $5.12 per Virgin Mobile share.
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, said Sprint.
The exchange ratio for Virgin Mobile shares held by SK Telecom Co. Ltd. will be equal to 89.84% of the exchange ratio for the public stockholders, or approximately $4.94 per Virgin Mobile share.
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.
Sprint said it expects to issue between 81.4 million and 104.7 million shares of its common stock in exchange for all Virgin Mobile common stock, excluding Sprint's 13.1% stake.
The transaction is expected to be completed in the fourth quarter of 2009 or in early 2010.
Sprint to license brand
Virgin Mobile will continue to license its brand from the Virgin Group. Sprint will pay $12.7 million for the initial term, which will continue through the end of 2021, a Sprint news release said.
Existing and prospective customers will continue to be served under the Virgin Mobile and Sprint's Boost Mobile brands.
Dan Schulman, current Virgin Mobile chief executive officer, will lead Sprint's prepaid business and report to Dan Hesse, Sprint Nextel president and CEO.
Wells Fargo Securities advised Sprint on the transaction.
Virgin Mobile was advised by Deutsche Bank Securities Inc., Colonnade Advisors LLC and Foros Advisors LLC.
Sprint Nextel is an Overland Park, Kan.-based provider of wireless and wireline communications services.
Virgin Mobile USA is a Warren. N.J.-based provider of wireless communications services.
| Acquirer: | Sprint Nextel Corp.
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| Target: | Virgin Mobile USA, Inc.
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| Announcement date: | July 28
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| Termination fee: | $14.2 million
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| Expected closing: | Fourth quarter of 2009 or in early 2010
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| Stock price of target: | NYSE: VM: $4.21 on July 27
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