Virgin Mobile and Korea's SK in talks

11/05/2008 10:10

By Sinead Carew

NEW YORK (Reuters) - Richard Branson’s Virgin Mobile USA and South Korea’s SK Telecom <017670.KS>, which controls U.S. mobile service Helio, are in early talks on a deal, a person familiar with the discussions said on Friday.

The person, who was not authorized to comment on the matter and asked not to be identified, declined to specify the nature of the talks.

"Virgin Mobile and SK Telecom are having preliminary talks," said the source.

Recent blog reports said the talks have included scenarios such as SK Telecom buying Virgin Mobile USA, which had a market value of about $170 million (87 million pounds), and combining it with Helio.

Under one scenario that has been discussed, SK Telecom would buy out Virgin Mobile USA and do a cash infusion; then Virgin Mobile would buy Helio in an all-stock transaction, moconews.net said in a blog post on Thursday.

The source told Reuters it was too soon to say how a deal would be structured, whether it would involve a merger of the U.S. entities, or a purchase of Virgin by SK, or other possibilities.

Both Virgin Mobile USA -- part owned by Branson’s Virgin and Sprint Nextel -- and Helio rent space on Sprint’s wireless network to target young cell phone users.

Virgin, which has been suffering from customer defections amid .....continued below

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U.S. economic weakness, focuses on prepaid services, where customers pay for calls in advance.

Representatives for Helio and Virgin Mobile USA declined comment and an SK Telecom spokeswoman was not immediately available for comment.

Helio, which is roughly 69 percent owned by SK and 28 percent owned by EarthLink , targets tech-savvy consumers who are happy to spend money on cool devices and data services, such as text messaging and mobile Web surfing.

Its customers, which numbered about 200,000 at the end of April, pay monthly bills rather than buy call-time upfront.

Analysts said a merger would not likely solve any problems for Virgin, which faces increased competition from big rivals such as AT&T and Verizon Wireless, a venture of Verizon Communications and Vodafone Group .

But a purchase of Virgin Mobile USA could cheer shareholders, which saw the stock fall from its $15 per share market debut last October. The stock fell 3 percent to $3.16 on Friday on the New York Stock Exchange.

"If SK is coming in with new cash and buying in at a premium that’s good for the shareholders. That means shareholders are being paid to assume Helio risk," said Roe Equity Research analyst Kevin Roe.

But a purchase would be no "silver bullet" for Virgin Mobile, Roe said.

(Additional reporting by Jessica Hall; editing by Carol Bishopric)

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