SK Telecom-Helio-Virgin Mobile Deal Done; Helio To Be Injected Into VMUSA: Report
By Rafat Ali - Tue 24 Jun 2008 07:17 PM PST
So reports FT this evening, citing sources. We first broke the news on the deal talks last month, and after hiccups in valuation and other issues, the deal has been signed in principle and that an announcement could be made as early as this week. The deal will include Helio, now majority owned by SK Telecom (NYSE: SKM), injected into Virgin Mobile USA (NYSE: VM), and better-recognized Virgin brand will be retained.
VMUS, which did its IPO on NYSE last October, will issue new shares, leaving SK Telecom holding close to 20 percent of the equity of the enlarged business, which will be worth about $50 million, the story says. SKT will also invest a nominal amount of cash in VMUSA.
Virgin has about 5.1 million mobile customers, all of whom are on pay-as-you-go deals...Helio has about 200K, all post-paid.
Will this deal make any material difference to VMUSA’s chances of surviving in the long term? It will certainly give it some cash, and the Korean expertise in handset and advanced mobile service, for whatever that is worth. It will also give VM an entry into higher end handsets, higher ARPU customers, and better UI that comes with Helio, if they decide to use that. Distribution and still-relatively smaller scale remains an issue…
Possibly the best analysis and rationale of a merger comes from one of our commenters, who posted this in response to a previous post on Helio store closures:
“1. Savings in operations by merging overlapping areas such as IT. This can reduce Helio’s current operating costs by as much as 40 percent.
2. By pooling the minutes, Helio saves on Virgin Mobile’s current lower wholesale rates. This could result in savings for cost of goods sold by nearly 15 percent.
3. By rolling out Helio’s exclusive services to the Virgin community it increases margins for the business without any additional investments. Imagine 5 million people now being able to use exclusive services such as Answer Rings, Google (NSDQ: GOOG) Maps, Buddy Beacon, Tell Me, Opera Mini Browser and other innovative services only found in Helio.
Lets say Virgin Mobile customers are willing to pay just $5 a month for the exclusive service package which on data services the margin is around 90 percent. This would increase the earnings of Virgin Mobile by 75M per quarter or roughly equal to 15 times it’s current quarterly earning.
4. Ability to take advantage of Virgin Mobiles current distribution channels allowing it to reduce its own direct distribution footprint. Which it is currently doing right now by shutting down their current distribution and streamlining operations.
5. Equipment cost savings by taking advantage of SK Telecom’s relationships. This includes a $1 billion in research and development budget from SK Telecom.”
Posted in: Companies, Operators, MVNO, Helio, Virgin, SK Telecom, Money, VC M&A, Mergers & Acquisitions
