Sprint Nextel aims at prepaid growth with Virgin deal; IBM expands business model with SPSS

By Stephanie N. Rotondo

Portland, Ore., July 28 - Technology companies were the focus of merger-and-acquisition activity Tuesday, with Sprint Nextel Corp. and IBM Corp. both announcing deals.

Sprint said it will expand its prepaid business by acquiring Virgin Mobile USA Inc. The addition of Virgin's prepaid segment will certainly be accretive to the company, but it does not address its "core struggles," according to one analyst.

IBM meanwhile is attempting to further its own business model by picking up SPSS Inc. in an all-cash transaction. An analyst said that the merger is in keeping with IBM's business plan.

The equity markets ended the session mixed. The Dow Jones Industrial Average dropped 11.71 points, or 0.13%, to 9,096.42, as the Standard & Poor's 500 index dipped 2.58 points, or 0.26%, to 979.61. The Nasdaq Composite closed up at 1,975.51, gaining 7.62 points, to 0.39%.

Sprint's 'increasing focus' on prepaid

Sprint Nextel, in a move to increase its prepaid customer base, said it will acquire Virgin Mobile USA for total equity value of $483 million, or $5.50 per Virgin share.

In addition, Sprint will retire Virgin's outstanding debt, which totaled $248 million as of March 31. The debt is expected to fall to $205 million by Sept. 30.

"The acquisition of Virgin Mobile USA positions Sprint for even greater success in the prepaid wireless segment," Dan Hesse, Sprint's president and chief executive officer, said in a statement. "Prepaid is growing at an unprecedented rate with consumers keenly focused on value. Virgin Mobile is an iconic brand in the marketplace that will complement our Boost Mobile brand."

"It looks like this is pretty much an acquisition of customers," said Steve Clement, an analyst with Pacific Crest Securities. "[Sprint] just had an opportunity to pick up some customers while being accretive to earnings."

Clement said that Sprint's prepaid business has actually performed well in recent history, though the "core struggles" have been on the postpaid side.

"Prepaid is where the strength is," Clement said. "So it shows Sprint's increasing focus on prepaid.

"But it doesn't really address the issues on the postpaid side."

The deal is expected to close in late 2009 or early 2010.

Sprint's stock increased 7 cents, or 1.54%, to $4.62, while Virgin's shares gained 99 cents, or 23.52%, to $5.19.

Sprint Nextel is an Overland park, Kan.-based wireless telecommunications provider. Virgin Mobile USA is based in Warren, N.J.

IBM boosts software focus

IBM is planning to acquire predictive analytics software maker SPSS in an all-cash transaction valued at approximately $1.2 billion, or $50.00 per share.

The acquisition will allow IBM to expand its information-on-demand portfolio, the company said in a press release. The purchase will also increase the company's business analytics software base.

"IBM is expanding its focus on business analytics technology and services to meet growing client needs to cut costs, reduce risk, and increase profitability through predictive analytics capabilities, which include advanced data capture, data mining and statistical analysis," the release stated. "These capabilities help organizations analyze trends and patterns found in historical and current data to drive new forms of competitive advantage by predicting potential future outcomes and optimizing all elements of their businesses, including product and service offerings for customers."

"With this acquisition, we are extending our capabilities around a new level of analytics that not only provides clients with greater insight - but true foresight," Ambuj Goyal, general manager of information management, said in the release. "Predictive analytics can help clients move beyond the 'sense and respond' mode, which can leave blind spots for strategic information in today's fast paced environment - to 'predict and act' for improved business outcomes."

Brian Marshall, an analyst with Broadpoint Amtech, said the merger is in keeping with IBM's business model.

"Basically what the company has done over the last five to 10 years is to really transform itself into a business software vendor," Marshall said. "This acquisition continues down that path."

And, Marshall noted, the deal should help to increase IBM's overall worth.

"IBM has done a great job in terms of buying the right companies and divesting itself of units that it doesn't want on its books," he said. "This kind of highlights their business model and definitely fits in with their plan."

Marshall also expects that IBM will be able to integrate SPSS well, resulting in cost cutting and business synergies.

The sale is expected to close in the second half of 2009.

IBM's equity dipped 47 cents, or 0.40%, to $117.16. SPSS' stock jumped $14.30, or 40.75%, to $49.39.

IBM is an Armonk, N.Y.-based computer technology company. SPSS is based in Chicago.

Mentioned in this article:

IBM Corp. NYSE: IBM

Sprint Nextel Corp. NYSE: S

SPSS Inc. Nasdaq: SPSS

Virgin Mobile USA Inc. NYSE: VM

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