Third-place wireless carrier Sprint Nextel announced yesterday that it would purchase prepaid phone service Virgin Mobile at $5.50 a share, a deal estimated at $483 million.
Sprint Nextel, which already owned a 13.1 percent stake in the mobile virtual network operator (MVNO), promised to retire the company's estimated $205 million debt when the deal closes in late 2009 or early 2010. The deal is alleged to have netted Virgin CEO Sir Richard Branson an estimated $250 million.
The post-merger Virgin Mobile will be headed by current Virgin Mobile CEO Dan Schulman, reporting to Sprint CEO Dan Hesse. The Virgin Mobile brand will coexist alongside Boost Mobile, Sprint's current prepaid phone offering.
In a statement, Hesse said the buyout was designed to give Sprint more leverage in the burgeoning prepaid mobile arena.
"The acquisition of Virgin Mobile USA positions Sprint for even greater success in the prepaid wireless segment," Hesse said. "Prepaid is growing at an unprecedented rate with consumers keenly focused on value. Virgin Mobile is an iconic brand in the marketplace that will complement our Boost Mobile brand."
As the recession drags on and consumers look to downsize any way they can, prepaid wireless services--where the user buys blocks of minutes and pays only for those, rather than unlimited "all-you-can-eat" plans--can be an attractive alternative. The Virgin Mobile purchase also gives Sprint a dominant leg up in the MVNO market, where carriers lease their networks from other carriers. Virgin Mobile had previously bought MVNO operator Helio.
The deal may also reflect Sprint's struggles to right itself after losing ground to competitors AT&T and Verizon Wireless in the last several years, hampered by problems stemming from its acquisition of Nextel in 2005, and continual bleeding of customers to rival providers.
Although prepaid cell phone plans can save customers both time and money, and Virgin Mobile has scored high in customer satisfaction among prepaid wireless carriers, ConsumerAffairs.com regularly receives complaints about both Virgin Mobile and its new parent Sprint.
"On 6/22/2009, I made payment of $150 on my cellular service. Per Sprint, they applied the payment to my ex-husband's account without my knowledge or consent," said Pamela of Phoenix, Arizona. "They now refuse to transfer the payment to my account and have turned off service, although they are continuing to charge me for service."