An investor in Virgin Mobile USA, Inc. (Public, NYSE:VM) has filed a proposed securities class action lawsuit in the United States District Court of New Jersey on behalf of investors that purchased the VM shares before July 28, 2009, over breaches of fiduciary duty and other violations of state law in connection with an alleged unfair takeover price.
The claims arise from a proposed merger, announced on July 28, 2009, whereby Sprint Nextel Corporation will convert each publicly traded share of Virgin Mobile into the equivalent of$4.50 of Sprint stock in a transaction valued at approximately $483 million. The plaintiff alleges that the Proposed Merger with Sprint and the acts of defendants, as more particularly alleged in the complaint, constitute a breach of defendants' fiduciary duties owed to Virgin Mobile's public shareholders and a violation of applicable legal standards governing the defendants herein. The complaint further alleges that in pursuing the unlawful plan to sell Virgin Mobile for inadequate consideration, each of the defendants breached and/or aided and abetted the other defendants' breach of their fiduciary duties of loyalty, due care, good faith and/or deed.

Sprint Nextel Corporation (NYSE:S) and Virgin Mobile USA, Inc., (NYSE: VM) announced on Tuesday 28, 2009 that “their boards of directors have approved a definitive agreement for Sprint to acquire Virgin Mobile USA” and that “Each public stockholder, holding in aggregate approximately 39.7 million shares on a fully diluted basis or 43.3% ownership, will receive Sprint shares having a 10-day average closing price equivalent to $5.50 per Virgin Mobile USA share”. The exchange ratio is subject to the following condition. The exchange ratio for public stockholders will be based on Sprint's 10-day average closing share price ending two trading days prior to closing and the exchange ratio will be subject to a collar such that in no event will the exchange ratio be lower than 1.0630 or higher than 1.3668.

The transaction is valued at a total equity value of approximately $483 million, which includes the value of Sprint's current 13.1% fully diluted ownership interest in Virgin Mobile USA. Previously announced investigation by law firms said said “the transaction appears to be unfair” to current investors of Virgin Mobile USA, Inc. (NYSE:VM) “by failing to conduct an open and fair auction process for the Company” and the “offer to purchase Virgin Mobile USA for $5.5 per share appears opportunistically timed to take advantage of the current economic downturn”. Another investigation even called the deal “suspicious because it appears from a review of the Company's financial statements that the inherent value of the Company's stock is greater than $5.50 per share, because Sprint already owns enough of Virgin Mobile's stock that it has the ability to dictate to Virgin Mobile the price that it wants to pay for Virgin Mobile, and also because Virgin Mobile's Board of Directors has effectively blocked companies other than Sprint from making a better offer”.

Virgin Mobile USA, Inc., located in Warren, New Jersey, is a provider of wireless communications services, offering prepaid services and postpaid services targeted at the youth market. Virgin Mobile’s voice and data plans allow its customers to talk, use text messaging, picture messaging, e-mail and instant messaging on a per usage basis or according to the terms of its monthly hybrid plans. Virgin Mobile reported in 2007 Total Revenue of $1.32542billion with a Net Income of $4.22million and in 2008 Total Revenue of $1.32349billion with a Net Income of $7.95million. Shares of Virgin Mobile USA, Inc. (Public, NYSE:VM) traded on the day before the announcement at $4.50 per share and after the announcement at $5.28 per share. VM shares reached in 2008 almost $9 per share.