Virgin Mobile plans IPO of up to $467.5 million

By Sinead Carew

NEW YORK, Sept 25 (Reuters) - Virgin Mobile USA Inc, a venture of Sprint Nextel Corp (S.N: Quote, Profile , Research) and Richard Branson's VirginGroup [VA.UL] set a price range of $15 to $17 a share on Tuesday for a planned initial public offering to raise up to $467.5 million.

The mobile service provider, which focuses on the youth market, expects to price 27.5 million Class A common shares, according to a filing with the U.S. Securities and Exchange Commission.

The IPO, which would float 42.8 percent of Virgin Mobile, is aimed at raising money to reduce debt.

Sprint's stake will fall to 17.2 percent from 47 percent and it will receive $160.8 million as part of the deal. Virgin Group's ownership will fall to 35.7 percent from 47 percent.

Analysts said the IPO would likely be well received as investors would be attracted by the Branson name, as well as Virgin Mobile's growth prospects.

The company operates in the prepaid wireless market, where users pay for telephone calls in advance.

Stifel Nicolaus analyst Chris King said the prepaid market is "where most of the growth in the U.S. wireless industry is going to be coming from in the next few years."

Virgin Mobile estimated it had a roughly 15 percent share of the prepaid market in 2006 and cited a forecast from Yankee Group that the prepaid market would grow to about 53 million people in 2011 from 29 million in 2006.

The IPO also comes as U.S. service providers look to data services, such as Web surfing, for growth because most people in the country already own cell phones.

"It's good timing. We're just on the upswing in terms of data services," said Cowen & Co analyst Tom Watts.

Virgin Mobile, which competes with big national rivals as well as smaller niche providers, filed for a $100 million IPO in May, but boosted the target to about $500 million in July.

MetroPCS Communications Inc (PCS.N: Quote, Profile , Research), another wireless service, raised $1.15 billion in its initial public offering in April and closed up 20 percent that day.

DEBT PAYMENT

The Warren, New Jersey-based company plans to sell about 25.6 million shares, while stockholders will sell an additional 1.95 million, according to the filing.

Assuming the shares sell for $16 each, Virgin Mobile estimated net proceeds would be $375.6 million after underwriting costs and other expenses.

It said it would use part of the proceeds to repay $150 million of debt under its senior secured credit facility and $45 million it owes to Sprint Nextel.

Virgin Mobile USA, had 4.83 million customers at the end of June compared with 8.6 million at its biggest prepaid competitor Tracfone -- a unit of America Movil.

The company also competes with AT&T Inc (T.N: Quote, Profile , Research), the top U.S. mobile service; youth-focused services such as Sprint's Boost; and smaller rivals such as Helio, a venture of SK Telecom Co Ltd and EarthLink Inc (ELNK.O: Quote, Profile , Research), and MetroPCS.

Amp'd Mobile, another rival that served the youth market, went bankrupt earlier this year.

The company, which applied for a New York Stock Exchange listing under the symbol "VM," said it had turned a profit of $26.5 million on revenue of $666.9 million for the six months ended June 30. It posted a net loss of $36.7 million on revenue of $1.1 billion for 2006.

Taking its results in the quarter ended June 30 on an annualized basis, the company's price-to-earnings ratio would be 32 compared to MetroPC's less attractive ratio of 42, according to Francis Gaskins, president of IPO research firm IPOdesktop.com.

Virgin Mobile USA typically sees higher revenue in its fourth and first quarters, when young consumers usually spend more, said Gaskins, indicating the company's valuation could be even richer.

Scott Sweet, managing director of research firm IPOBoutique.com, expects investors to be attracted by the association with Branson, but said the IPO is unlikely to create the same buzz as recent technology offering VMware Inc, which soared 76 percent in its Aug. 14 market debut.

The Virgin Mobile offer is expected in the second week of October, according to data tracker Dealogic.

Virgin Mobile has been operating since July 2002 and runs its services on Sprint's network. (Additional reporting by Lilla Zuill in New York)