Virgin Mobile USA confirmed its plans to acquire Helio, a joint venture between SK Telecom and EarthLink.
Under the terms of the acquisition, Virgin Mobile USA will acquire Helio for limited partnership in an all-stock exchange valued at $39 million. Also Virgin Group and SK Telecom (SKT) will each invest $25 million of equity capital into the new Virgin Mobile USA. After closing, SK Telecom is expected to own roughly 17% of Virgin Mobile USA, and will take two seats on Virgin Mobile USA’s Board of Directors.
Virgin Mobile USA CEO Dan Schulman said in a statement: “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.”
Adding that the acquisition will provide the MVNO 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 Helio’s customers are immediately profitable when brought on to our cost structure.”
Along with acquiring Helio’s 170,000 existing subscribers, Virgin Mobile USA will add Helio’s “unique and differentiated data applications” to its current suite of products and services. The acquisition also provides Virgin Mobile USA with an established postpaid billing and customer care platform.
Jin Woo So, president of Global Business at SK Telecom said in a statement: “This transaction and our long-term, strategic investment in Virgin Mobile USA continue SKT's strong momentum in the U.S. market, and will allow Helio and Virgin Mobile USA to realize significant synergies and strategic benefits…We believe the strength of the business model will serve to enhance the value we built at Helio, and we look forward to a long-term partnership.”
The transaction is expected to close in Q3 2008, subject to regulatory approvals and other customary closing conditions.
Virgin Mobile USA also has reached an agreement with Sprint to revise the terms of its existing network contract, and expects to achieve a minimum of an 8% reduction in its effective cost per minute in 2009, with further reductions over the next three years. Under the new amendment to the PCS Services agreement, Virgin Mobile USA ’s cost per minute is tied directly to the volume of network traffic it generates and will no longer be dependent on Sprint’s network costs.