U.S. Data Giant Equinix Buys Telecity
U.S. firm wins scramble to buy U.K.-based peer in a cash and share offer worth $3.60 billion
By Simon Zekaria
The Wall Street Journal
Updated May 29, 2015 5:43 a.m. ET
LONDON—U.S. data center giant Equinix Inc. EQIX -0.42 % on Friday agreed to buy U.K.-based peer Telecity Group TLEIY -0.58 % PLC in a cash and share offer worth £2.35 billion ($3.60 billion), squashing an earlier tie-up between Telecity and another European player, and underscoring the industry’s consolidation on the continent amid swelling demand for data and digital services.
Companies including technology and telecommunications firms are increasingly outsourcing data management and information technology handling to operators such as Equinix and Telecity, where data storage space is rented by rack, cage or room. These smaller data centers are positioned near urban areas where millions of consumers are located, and therefore favored by companies for proximity and network speed.
“There is a very sizable market opportunity here in Europe that companies are looking to exploit,” said Eric Schwartz, Equinix’s president of Europe, the Middle East and Africa.
The deal creates Europe’s largest data center operator and comes amid rising demand for data centers—vast warehouses of computer and telecom equipment that power the Internet. Driving the demand is the growing use of data on mobile phones and of so-called cloud services—a catchall term for files accessed remotely over the Internet.
Global Internet traffic will triple over the next five years, according to networking-hardware specialist Cisco Systems Inc., CSCO -0.14 % with mobile data flow rising 11-fold between 2013 and 2018. Cloud-computing spending will nearly double to $285.7 billion in 2018 from 2014, adds research firm Gartner.
Equinix offered 1,145 pence per share, with 572.5 pence payable in cash and the rest in stock, it said. The offer represents a premium of approximately 35% to Telecity’s closing price of 849 pence on Feb. 10.—the last business day before Telecity announced a prior merger with Netherlands-based data center operator rival Interxion Holding NV.
In February, Telecity said it would merge with Interxion to form an operator with a combined value of $4.5 billion. But in May, Equinix barged in with an offer of its own and Telecity said it was obligated to consider it.
Following completion of the transaction with Equinix, Telecity shareholders will hold approximately 10.1% of the combined group, the firms said in a statement Friday.
Telecity’s previous merger agreement with Interxion has ended, Equinix and Telecity said. Interxion also confirmed the ending of the agreement.
That leaves Interxion in a delicate spot, now facing a much larger competitor in the form of a combined Equinix and Telecity. “Interxion is a leading provider of data centers throughout Europe with a focused growth strategy,” said Chief Executive David Ruberg.
At 0922 GMT, Telecity shares were down 0.4% at 1,086 pence, valuing the company at £2.21 billion. Analysts said there are investor concerns that the deal undervalues Telecity given the company’s rising commercial fortunes in an expanding sector.
Still, Numis Securities analyst David Toms said he doesn’t expect a counterbid. “We think Equinix probably has the deepest pockets.”
Equinix said Telecity’s executive chairman, John Hughes, will join the Equinix board on completion of the deal.
“The addition of TelecityGroup’s businesses will considerably strengthen Equinix’s offering to customers in Europe and beyond,” said Equinix Chief Executive Stephen Smith.
Telecity, which operates in major cities such as London, Paris and Frankfurt, has 39 data centers in 11 European countries. New York-listed Interxion also has 39 data centers in 11 European countries.
Redwood City, Calif.-based Equinix, which has a market value of over $14 billion, runs more than 100 data centers world-wide, with 30 in Europe, the Middle East and Africa.
Equinix, which reported revenue of $2.44 billion in the year to the end of December, said it has invested over a billion dollars in Europe, the Middle East and Africa in the last five years.
MARKET TALKTelecity Investors Have Value Concerns Telecity shareholders have concerns that the data center operator is undervalued, even as Equinix agrees takeover terms for the U.K.-based data center operator, says Jefferies analyst Milan Radia. “Telecity’s highly connected sites and strong Internet peering market shares are strategic assets,” he said. (simon.zekaria@wsj.com; @SimonZekaria)
Telecity Unlikely to Receive Counterbid Telecity is unlikely to receive a counterbid to Equinix’s offer, says Numis analyst David Toms. “Both the premium and the multiple look attractive and we expect shareholders to vote in favor of the deal. We do not expect a counterbid. We think Equinix probably has the deepest pockets and greatest synergies of any potential bidder.” Still, other analysts said there are investor concerns that Telecity is undervalued. (simon.zekaria@wsj.com; @SimonZekaria)
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Write to Simon Zekaria at simon.zekaria@wsj.com
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