Mystery Company Tried to Buy Virgin Mobile USA
Friday, Sep 4, 2009
It has been revealed that there was a second mystery suitor interested in buying Virgin Mobile USA during the negotiations that eventually lead to Sprint Nextel issuing an agreed takeover of the company.
According to a SEC filing issued by Sprint Nextel detailing the proposed acquisition of Virgin Mobile, it emerged that talks between the two companies started late last year and various meetings were held between the two companies.
On March 18, 2009, at a special meeting of the Virgin Mobile USA board of directors, representatives of Deutsche Bank discussed strategic alternatives for Virgin Mobile USA, with specific reference to a potential acquisition of Virgin Mobile USA by Sprint Nextel. Deutsche Bank also discussed a timeline for approaching the mystery bidder, identified only as "Company X" regarding a potential transaction.
At the meeting, Deutsche Bank noted that among all potential acquirers in the market Company X would be the company most interested in acquiring Virgin Mobile USA other than Sprint Nextel, based on its perceived financial strength, similar business model and past management dialogue with Virgin Mobile USA.
On April 1st, at a special meeting of the Virgin Mobile USA board of directors, representatives of Deutsche Bank discussed the company's strategic alternatives, specifically addressing the benefits of a transaction between Virgin Mobile USA and Sprint Nextel related to their existing relationship. At the same meeting, the board of directors authorized Virgin Mobile USA's management to respond to the inquiry from Sprint Nextel and to have Deutsche Bank contact Company X's executive officers.
During the rest of the month, the mystery bidder was granted access to Virgin Mobile USA's financial accounts under standard NDAs, and expressed an interest in bidding for the company. On May 16th, Company X executed a non-disclosure agreement with Virgin Mobile USA.
Various meetings where held during May between the CFO of Company X and the directors of Virgin Mobile USA.
On June 1st, Company X submitted a letter of interest to Virgin Mobile USA, offering a preliminary proposal to acquire the company based on an implied price of $4.27 to $5.00 per share. Company X also proposed to repay all outstanding loans to Virgin Mobile USA by its stockholders. However, there was an existing offer from Sprint Nextel of $5.22 per share, with the same debt repayment proposal. For its part, Virgin Mobile was seeking offers closer to $6.37 per share.
On July 10th, Company X submitted a revised proposal to Virgin Mobile USA that increased the cash consideration to be paid to $5.00 per share but did not propose terms or amendments to some of the other areas of concern that had been raised during their negotiations over the prior month, specifically relating to wireless licenses, trademarks and tax liabilities.
At a meeting a week later, the board of Virgin Mobile discussed the issue of PCS licensing for the MVNO with Sprint Nextel - and were evidently concerned that a deal with Company X could be blocked by Sprint Nextel, or at least the MVNO agreement could be imperiled.
Although the identity of the bidder is never confirmed, one sentence in the minutes notes that Company X is a "strategic competitor of Sprint Nextel".
On July 24th, Company X informed Virgin Mobile USA and its financial advisors that it was withdrawing its offer.
As is now known, on July 28th, Sprint Nextel and Virgin Mobile USA issued a joint press release announcing the proposed transaction - valuing the sale at US$483 million.
Following the closing of the transaction, Virgin Mobile USA will continue to license the Virgin Mobile USA brand from the Virgin Group under the terms of an amended and restated Trademark License Agreement. Sprint will pay $12.7 million for the initial term, which will continue through the end of 2021. The agreement contains several renewal provisions that will allow Virgin Mobile USA to extend the term until 2047.
Sprint will also pay Virgin Group approximately US$50 million at closing as payment in full for net operating losses available to be utilized by Virgin Mobile USA in the future under the Tax Receivable Agreement.
In addition, at closing Sprint 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 Sept. 30, 2009.
The current shareholders are Virgin Group (28.3%), SK Telecom (15.3%), Sprint Nextel (13.1%) and 43.3% listed on the stock market. As of the year ending 2008, Virgin Mobile USA has 5.38 million users.
Posted to the site on 4th September 2009