Is Sprint buy out of Virgin Mobile more about reputation?

First announced back in July, Sprint has announced that its acquisition of Virgin Mobile in the USA is now complete. Can the Virgin brand help Sprint get over its bad public image problems?

What’s the story?

On July 28th of this year, Sprint Nextel announced it was going to be buying the 83% or so of Virgin Mobile it didn’t already own. The essential details of the deal were that it was buying Virgin Mobile USA completely, for around $500 million. This payment would be a mixture of cash and shares - including over $200 million just to cover the outstanding debts of Virgin. Public stockholders in Virgin are to get around $5.50 per share, with major shareholders like Virgin Group and SK Telecom getting slightly less at about $5 per share.

And now it has been finalised.

Sprint shareholders voted for the purchase with an overwhelming 98% majority yesterday, putting the final rubber stamp of approval on a deal that is ready to roll.

What we think?

This is a good match for Sprint. The Virgin Mobile USA network offers very similar pre-paid deals to Sprints mobile network, Boost. The problem for Sprint is that it has a reputation for being unreliable. This was true in the past, with huge numbers customer complaints being aimed the network. But Sprint and Boost have become far more reliable in recent years… it’s just that a bad reputation is much harder to shake than it is to pick up. Virgin doesn’t have as bad a rep as Sprint, so by absorbing a similar service with a better reputation, it might be able to shore that up somewhat. Sprint has declared it will be keeping Boost and Virgin as separate services, but there will be a certain amount of cross-selling.