Irvine-based Boost Mobile is reportedly on the sales block, and the provider of prepaid phone and internet services could fetch anywhere from $1.8 billion to $4.5 billion as parent Sprint Corp. looks to close on a much larger deal of its own with T-Mobile US Inc.
Several notable firms have been cited in national news reports in the past week as potential suitors for Boost, a no-contract brand that serves subscribers seeking wireless plans without data limits.
One potential bidder could be Peter Adderton, who originally founded Boost in Australia in 2000 before expanding it to Irvine in 2002 with the help of fellow Aussie and now OC resident Craig Cooper.
“We’re going for it,” Adderton told the Business Journal last week.
He declined to reveal who his financial backers are, except to note he wouldn’t bid for it if he didn’t have them.
While a $3 billion value is often tossed around, Adderton said he would have to study forward multiples before deciding on a valuation.
When asked whether Amazon.com Inc. would be a rival bidder or a financial backer, Adderton said, “Everyone’s a strategic partner and everyone’s a competitor.”
Amazon (Nasdaq: AMZN) could be the most prominent—perhaps intriguing—of the possible bidders. It might make a bid for $3 billion or more, according to a Reuters report last week, which cited unidentified people familiar with the deal.
Adderton in the past year has been urging the government to force the divestiture of Boost because otherwise, New T-Mobile would control too much of the pre-paid market.
“If the merger is approved, it’s 100% certain that Boost will be divested,” Adderton said.
T-Mobile is working with Goldman Sachs Group Inc. on divestitures, an indication that the companies are moving ahead on the Boost sale, Bloomberg reported last week.
Sprint (Nasdaq: S) looks likely to sell Boost Mobile to gain Justice Department approval for its $26 billion acquisition by T-Mobile US Inc., a deal first proposed last April but yet to close.
Sprint employs 500 in Orange County, ranking No. 6 on the Business Journal’s annual list published last August of telecommunications and wireless companies. Sprint’s local headquarters that houses Boost Mobile are in the Irvine Spectrum; the company doesn’t break out the employee count within the Boost unit, which it has owned since 2005.
While Boost’s headquarters are in Irvine, a large part of its operations such as marketing are being run out of Sprint’s main offices in Kansas, Adderton said.
If his bid is successful, Adderton plans on moving the bulk of operations to Irvine and hiring hundreds of workers.
“Supporting our bid and getting behind us will create tremendous jobs and innovation in Orange County,” he said.
Millions of Customers
A purchase by Amazon could greatly increase that company’s wireless ties to existing customers and potential ones, according to stories touting the Seattle-based firm’s potential bid.
Sprint’s prepaid unit, which along with Boost includes Virgin Mobile, has 8.8 million customers, according to its latest annual report.
Cowen Inc. analysts estimated Boost has 7 million to 8 million customers, and said in a Reuters report that the transaction could be valued at as much as $4.5 billion if the deal included wireless spectrum, which are the airwaves that carry data, and facilities.
National news reports have also cited these potential bidders:
• Q Link Wireless, a prepaid brand and the third-largest provider of federally assisted wireless plans, is putting together a package to bid for Boost with private equity backing and could pay between $1.8 billion to $3 billion, according to Issa Asad, the company’s chief executive and founder.
Q Link is based in Hollywood, Fla. Asad told the Sun Sentinel newspaper last week that most of Boost Mobile’s corporate structure would largely remain in Irvine if he were able to complete a deal, with additional jobs going to Florida.
• FreedomPop, a prepaid wireless company, is working with a private equity group that values Boost at $4 billion, Chief Executive Stephen Stokols said.
Crazy Idea?
An Amazon purchase of Boost doesn’t make sense, according to an analyst Institutional Investor has picked seven times as the best in the telecom industry.
“Every once in a while, a news item comes along that is so bat crazy—sorry for the profanity, but your author is at a loss for a better word here—that one is simply brought up short,” Craig Moffett of Moffett Nathanson LLC wrote in a research note.
The Reuters report “that Amazon is considering buying Sprint’s Boost brand, and, with accompanying spectrum, entering the wireless market, is one of those news items,’’ added Moffett, who has 30 years of experience in the telecom business.
Amazon spokeswoman Laura Gunning told the Business Journal that “we don’t comment on rumors or speculation.” Sprint didn’t return calls.
Key to a Deal
Boost’s initial U.S. operations were part of a joint venture with Nextel Communications, which eventually bought the company in 2004 when Boost had 1.2 million customers. In 2005, Nextel was acquired by Sprint for $37.8 billion.
Adderton, who has lived in Orange County for 18 years, said confidentiality rules prevent him from saying how much he made off the sale to Nextel.
“We made money—I mean I live in Newport Coast,” he said.
“There are very few people who have created a billion-dollar brand and I feel good about it.”
Boost has targeted teens and young adults with a humorous, sometimes irreverent brand image. It seeks subscribers who are looking for value without data limits or annual contracts. It offers plans that range from $35 to $200 a month, and competes against the likes of MetroPCS and Republic Wireless in one of the mostly hotly contested segments in telecom, in which consumers can drop carriers at any time and join others if they are unhappy about service, connectivity and data plans. It uses Sprint’s network to provide wireless services to its customers.
Out of Sprint’s companywide revenue of $33.6 billion for the year ended March 31, the prepaid unit generated about $3.75 billion. The unit’s revenue has declined in the past two years, a trend that Sprint in its annual report said it expects to continue due to new regulations.
As the founder of Boost, Adderton believes he has the inside track over other bidders.
“Everyone else is going to look like a mean stepdad compared to me,” he said. “At the end of day, my bid is very clear and simple—to provide inexpensive prepaid cell phone services.”
