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Tuesday, 01 July 2008 |
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SKT-Virgin combo floats into the sky as network mentor Sprint sinks into oblivion. Branso-Korean tails are combining to wag the Sprint-Nextel dog.
As forecast here (ok, look here, it wasn’t clever or psychic), Korea’s SK Telecom is buying into Virgin Mobile USA in an MVNO move. Officially, Virgin Mobile is buying SKT-led operation Helio for US$39mn, paid for in stock. SK Telecom will gain 17% of Virgin Mobile stock through this transaction, coupled with the fact that Virgin and SKT will between them pump US$50mn of further funds into the merged company. The latter is in an effort to keep the debt-dragged sickly pup of US mobile afloat for a few more months.
The Helio and Virgin US operations both rely heavily on the network of Sprint, which of late has shown all the go-forward momentum of SS Titanic. Heavy hints at a Branso-Korean takeover of Sprint are still at large, although momentum is hard to spot here: the Helio-Virgin deal adds just 0.17m customers to Virgin’s current 5mn.
Increased revolver? Hold your fire
There’s some corporate nonsense-speak, of course. Dan Schulman, Chief Executive Officer, Virgin Mobile USA, said, "we believe that the acquisition of Helio and the related strategic investments by SK Telecom and Virgin Group are of enormous benefit to our business, both financially and strategically. The reduction of our long-term debt and the increase to our revolver will realign our capital structure, providing us with greater liquidity and increased flexibility to grow our business. At the same time, we will acquire an asset, which will add to our scale, allowing us to reduce our network costs and assure that Helios’s customers are immediately profitable when brought on to our cost structure. We expect the combined elements of this deal will drive increased Adjusted EBITDA and free cash flow."
A rosy outlook for a woesome venture.
Jim Chalmers
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