Well, I have to say I'm a little surprised. Despite struggling to right its own corporate ship, this morning the nation's No. 3 carrier -- Sprint Nextel (NYSE: S) -- announced that it was acquiring Virgin Mobile USA (NYSE: VM) in a $483 million deal.
It's not that much of a stretch, actually -- Sprint Nextel already owns 13% of Virgin Mobile USA and supplies the network on which the company offers its services. Virgin Mobile offers prepaid wireless services, so the acquisition won't help Sprint Nextel make any headway against growing wireless competitors AT&T (NYSE: T) or Verizon (NYSE: VZ), but the purchase will augment its own prepaid offering called Boost Mobile.
Back when Virgin Mobile launched its IPO, I noted that "investors are better off taking a wait and see approach" with the stock. In a dazzling display of rapid market cap contraction, anyone who didn't heed that advice watched their Virgin Mobile USA stock fall from more than $15 to less than a buck in less than a year.
But so far this year, Virgin Mobile has been nothing but impressive. The company tends to beat analysts' performance expectations, and though revenue has stalled, the company has shown gains in operating and net income. The operating performance has done two things: It has made timely investors rich with a more than 500% return year to date, and has proven that the company's Virgin brand carries well into other areas, unlike Disney (NYSE: DIS), EarthLink (Nasdaq: ELNK), or ESPN, which have chalked up wireless services failures.
Sprint Nextel management sounded almost giddy about the acquisition, but shareholders will be left paying for this one. The offering will largely be done with stock, and Sprint Nextel will issue somewhere around 80 to 105 million new shares to dole out to Virgin Mobile holders.
Spring Nextel's prepaid offering Boost Mobile has been one of the bright spots in its deteriorating business, adding subscribers while the larger operation bleeds lucrative post-paid accounts. Hopefully, bringing in another solid prepaid offering won't make two rights into a wrong: Sprint Nextel -- and its shareholders -- can't afford another spoiled merger.
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