Suit: Virgin Mobile Undervalued In Sprint DealSuit: Virgin Mobile Undervalued In Sprint Deal

A class-action lawsuit claims Sprint Nextel's acquisition bid for Virgin Mobile severely undervalues the prepaid carrier.

The lawsuit was filed in New Jersey by the law firm Levi & Korinsky, and it alleges the deal would be unfair because it does not take adequate steps to maximize value for Virgin Mobile shareholders. The deal consists of exchanging stock and assuming debt, and it is expected to equal about $483 million when it closes in late 2009 or early 2010.

The lawsuit also alleges that Sprint was able to use its existing 13% share of Virgin Mobile to get a better price out of the acquisition.

"In addition, [Virgin Mobile] agreed to refrain from soliciting competing offers that may be superior than the Sprint offer and also agreed to pay Sprint a termination fee of $14.2 million in the event the agreement is terminated under certain circumstances that will all but ensure that no superior offer will ever be forthcoming," the lawsuit alleges.

A Sprint spokesperson did not comment on the lawsuit specifically, but said the wireless carrier believes the deal is in the best interest for shareholders of both companies. Sprint said it would continue to offer Virgin Mobile services as its own brand if the deal is completed.

The move shows the growing importance of the prepaid market for Sprint, which continues to bleed the more lucrative contract subscribers. The third-largest U.S. carrier has seen a large influx of prepaid customers through its Boost Mobile subsidiary, thanks to a $50 unlimited voice, data, text, and push-to-talk plan. Sprint CEO Dan Hesse said these prepaid subscribers are "very profitable for us."

information has published an in-depth report on smartphone security. Download the report here (registration required).