Consolidation in Pre-Paid Wireless (VM, S, LEAP)

It turns out the Virgin Mobile USA (NYSE: VM) has a solid value after all.  Sprint Nextel Corporation (NYSE: S) has decided to acquire Virgin Mobile USA.  The total equity value of the merger is listed as approximately $483 million, and that includes the value of Sprint’s current 13.1% interest held in Virgin Mobile USA.

Sprint will also retire all of Virgin Mobile USA’s outstanding debt when the time the merger closes.  That debt sum was listed as $248 million net of cash and cash equivalents as of March 31, but this sum is expected to be no more than $205 million net of cash and cash equivalents by September 30, 2009.

The exchange ratio come to a 10-day average at $5.50 per share in stock.  The deal 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.

This will give the new company a more solid footing in pre-paid cellular operations by combining the Virgin Mobile brand with Sprint’s Boost Mobile.

Sprint’s prepaid business combined with Virgin will be led by Dan Schulman after the merger, and he is the current Virgin Mobile USA CEO.  Schulman will report directly to Dan Hesse, Sprint Nextel president and CEO.

Leap Wireless International Inc. (NASDAQ: LEAP) just got a more solid competitor for its Leap and Cricket network.  Interestingly enough, Leap is up 2% pre-market on the news.

Virgin Mobile USA, Inc. (VM) shares are up 22% at $5.15 in early trading, while Sprint shares down only 0.2% at $4.54 this morning.

JON C. OGG
JULY 28, 2009