Sprint Nextel receives Federal Trade Commission approval to acquire remaining 86.9% stake in Virgin Mobile USA

Update on August 25, 2009:

Sprint Nextel Corporation has received clearance from the Federal Trade Commission to acquire the remaining 86.9% of Virgin Mobile USA, Inc. Based in the US, both Sprint Nextel and Virgin Mobile are providers of telecommunications services.

Announcement (July 27, 2009):

Sprint Nextel has entered into a definitive agreement to acquire the remaining 86.9% of Virgin Mobile USA.

The total equity valuation of approximately $483 million includes the value of Sprint's current 13.1% fully diluted ownership interest in Virgin Mobile USA. In addition, at closing Sprint Nextel 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 September 30, 2009.

Public shareholders own a 43.3% stake in Virgin Mobile USA, while the remaining interest is in the hands of Virgin Group, Ltd. and SK Telecom Co., Ltd. with a 28.3% and 15.3% stake, respectively.

Under the terms of the agreement, each Virgin Mobile USA public stockholder will receive Sprint Nextel shares having a 10-day average closing price equivalent to $5.50 per Virgin Mobile share and 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 exchange ratio for the Virgin Group will 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, while 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.

For SK Telecom, the exchange ratio for will be equal to 89.84% of the exchange ratio for the public stockholders, equating generally to $4.94 per Virgin Mobile share for common stock owned; 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.

Based on the terms of the agreement, Sprint Nextel 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.

Wells Fargo Securities, Inc. and King & Spalding LLP are acting as financial and legal advisors to Sprint Nextel, respectively. 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 USA, while Skadden, Arps, Slate, Meagher & Flom LLP, Simpson Thacher & Bartlett LLP and Davis Polk & Wardwell LLP are acting as legal advisors.

The transaction is expected to be completed in the fourth quarter of 2009 or in early 2010.

Deal Value (US$ Million) 667.72
Deal Type                Acquisition
Sub-Category             Majority Acquisition
Deal Status              Announced: 2009-07-27

Deal Participants

Target (Company)   Virgin Mobile USA, Inc.
Acquirer (Company) Sprint Nextel Corporation
Vendor 1 (Company) SK Telecom Co., Ltd.
Vendor 2 (Company) Virgin Group, Ltd.

Deal Rationale

This acquisition would strengthen Sprint Nextel's position in the growing prepaid segment by bringing together under one umbrella the Virgin Mobile brand with Sprint Nextel's Boost Mobile business. The transaction would also allow Sprint Nextel to gain a new customer base and enhance cross selling of it products and services across a larger target audience. Further, the transaction would generate free cash flow accretive for Sprint Nextel before synergies. It would also allow Sprint Nextel to derive synergies from general and administrative reductions, operational efficiencies, and streamlined distribution.

% Acquisition 86.9%

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