Virgin Mobile USA to acquire Helio in $39 million deal

Not completely unexpected, Virgin Mobile USA has today announced that it will indeed be taking over Helio. The MVNO joint-venture between SK Telecom and Earthlink has struggled to find even a modicum of success in a competitive and cut-throat US wireless market.

And, it seems that Helio’s financial troubles have finally come to a head with Virgin Mobile USA making a move to acquire the post-paid MVNO for 13 million shares of Virgin Mobile USA class A common stock, valued at $39 million. The deal is expected to be finalized in Q3 2008, pending regulatory approval. “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,” according to Dan Schulman, Chief Executive Officer, Virgin Mobile USA. “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.”

But, with Helio already in such a bad way, Virgin Mobile USA will have to invest considerably more than 13 million of its shares. The deal will include a $50 million strategic investment by Virgin Group (one of Virgin Mobile’s parent companies) and SK Telecom (the majority stake-holder in Helio) – $25 million from each. Virgin Mobile USA will also be acquiring Helio’s stock of 85,000 mobile phones units, worth $17 million.
While not a tremendous success, Helio has made a name for itself as a post-paid wireless carrier offering unique services and handsets with appealing features – areas in which Virgin Mobile USA has been sorely lacking. The acquisition will not only net Virgin Mobile USA all of Helio’s customer-base, but will also bring in the almost-defunct MVNO’s experience in the post-paid market. Helio reportedly boasts ARPU (average revenue per user) of $80, and Virgin Mobile USA is looking to immediately capitalize on that profitability.

Schulman added, “This strategic acquisition integrates Virgin Mobile USA’s brand recognition, scale and extensive distribution with Helio’s accomplishments in advanced handset and content offerings.”

The acquisition will help increase Virgin Mobile USA’s wireless footprint in the US, while also allowing them to renegotiate network-lease terms with Sprint – effectively lowering their per-minute costs by 8 percent. The combination of Helio and Virgin Mobile allows for an improved capital structure by increasing liquidity and paying down debt. But, more importantly for the consumer, the deal means that customers will see better handsets and services rolled out across Virgin Mobile’s subscriber-base. Users can expect to see EVDO data connectivity, GPS, Google Maps, YouTube, and MySpace applications integrated in to their mobile phones.

All in all, the rumored deal should bring more business for Virgin Mobile USA and help to boost their once fledgling stock options. For Helio, the deal represents a dignified alternative to a stage-left exit from a harsh wireless environment.

At least this MVNO didn’t go bankrupt.

Note: The deal between Helio and Virgin Mobile USA does not alter the TOS for Helio customers. Virgin Mobile USA has confirmed that customers wishing to terminate their Helio contracts will be subject to ETF fees. Emails have been sent to Helio customers.