MVNO Virgin Mobile USA has entered into an agreement to acquire Helio, a joint venture between South Korean operator SK Telecom and US ISP EarthLink.

Under the terms of the agreement, Virgin Mobile USA will acquire Helio from SK Telecom and EarthLink for limited partnership units equivalent to 13 million shares of Virgin Mobile USA class A common stock, with a value of USD 39 million based on the closing price of Virgin Mobile USA's class A shares on 26 June.

The transaction is expected to close in the third quarter of this year, subject to receiving regulatory approvals and satisfaction of other customary closing conditions. Upon closing, this transaction is expected to achieve a number of important steps for Virgin Mobile USA.

Strategically, the acquisition of Helio allows Virgin Mobile USA to add a set of differentiated data applications to its suite of products and services, greatly enhancing its offer across its customer base. Including reductions in Virgin Mobile USA's network rates and an improved capital structure, this transaction is expected to be accretive to adjusted EBITDA in 2008, excluding non-recurring transition costs, and to be accretive to adjusted EBITDA and free cash flow in 2009.

Virgin Mobile USA will gain an established and highly advanced postpaid billing and customer care platform. In addition, Helio has approximately 170,000 existing subscribers with an ARPU of approximately USD 80 and a handset inventory of approximately 85,000 units with a book value of approximately USD 17 million. Virgin Mobile USA also announced that Virgin Group and SK Telecom will each invest USD 25 million of equity capital in the company. The investments will take the form of mandatory convertible preferred stock, convertible to Class A common stock at USD 8.50 per share, pending shareholder approval. Through its holding of limited partnership units and preferred stock, SK Telecom is expected to own the equivalent of approximately 17 percent of Virgin Mobile USA, and will take two seats on Virgin Mobile USA's Board of Directors.

Virgin Mobile USA intends to use the proceeds from these strategic investments by SK Telecom and Virgin Group to pay down a portion of its existing senior secured loan. SK Telecom and Virgin Group have also agreed to provide an additional USD 35 million and USD 25 million, respectively, to increase Virgin Mobile USA's existing revolving debt facility, which will support the company's ongoing strategic growth. The additional revolver is expected to be used in part to fund debt and net working capital liabilities associated with restructuring and improving the efficiency of Helio's ongoing operating costs, up to a maximum of USD 25 million.

Source:Telecompaper