Virgin Mobile USA falls as SK denies deal reports

NEW YORK (Reuters) - Shares of Virgin Mobile USA Inc (VM.N: Quote, Profile, Research, Stock Buzz) fell as much as 13 percent on Tuesday after Korea's SK Telecom Co Ltd (017670.KS: Quote, Profile, Research, Stock Buzz) poured cold water on reports that the companies were in discussions about a deal.

Shares of the U.S. wireless service were down 36 cents at $2.78 in late morning trade on the New York Stock Exchange as investors, who have seen shares in the company fall from their $15 market debut in October, fled after SK told Reuters it was not in talks with Virgin for a specific deal.

"I wouldn't be surprised if that's what's caused the weakness in the share price," said Stanford Group analyst Michael Nelson, who has a $2 price target for Virgin Mobile USA and has a sell recommendation for the stock.

A source familiar with the matter had told Reuters on Friday that SK and Virgin Mobile USA were having preliminary talks. Recent blog reports have said talks included scenarios such as SK buying Virgin and combining it with another U.S. operator Helio, which is controlled by SK Telecom.

Both Virgin, which is partly owned by Richard Branson's Virgin VA.UL and Sprint Nextel (S.N: Quote, Profile, Research, Stock Buzz), and Helio rent space on Sprint's network to target young customers.

While Virgin Mobile USA targets cost-conscious customers who pay for calls in advance, Helio offers its services to tech-savvy users who pay monthly bills and use data services such as text messaging and mobile Web surfing.

While SK Telecom has been looking to overseas markets such as China and the United States for expansion, the company told Reuters earlier Tuesday that it was not in negotiations.

"We are considering various scenarios and tapping opportunities," said Mina Ryu, an SK spokeswoman. "But there is no specific negotiation going on."

And, although SK said it is meeting other operators to discuss businesses, "What is going on is too early to call a negotiation," Ryu said. "We are not ruling out any company and we have not set any specific target."