Telecity, Interxion to Merge in Data-Center Deal – WSJ

All-Share Merger Comes Amid Rising Demand for Digital Services

By SIMON ZEKARIAScreen Shot 2015-02-11 at 6.06.16 PM
Feb. 11, 2015 5:54 a.m. ET

LONDON—U.K.-based Telecity Group PLC on Wednesday said it would merge with U.S.-listed peer Interxion Holding NV to form a data-center operator with a combined value of $4.5 billion as the industry in Europe scrambles to meet ballooning demand for digital services.

Under the terms of the nonbinding, all-share agreement, Interxion shareholders would receive 2.3386 new Telecity shares for each Interxion share, representing a 15% premium to Interxion’s closing share price of $26.47 on Feb. 9, Telecity said in a statement.

Telecity shareholders would own approximately 55%, and Interxion shareholders approximately 45%, of the combined company, which would have a primary listing in London.

Telecity, which has a market capitalization of £1.72 billion ($2.63 billion), operates in major European cities such as London, Paris and Frankfurt, while New York-listed Interxion, valued at $1.94 billion, has 39 data centers in 11 European countries.

The deal comes amid rising demand for data centers—vast warehouses of computer and telecom equipment that power the Internet—as consumers use more data on their mobile phones and so-called cloud services—a catchall term for files accessed remotely over the Internet but hosted on outside computers.

As well as spending billions of dollars on their own data farms, companies are increasingly outsourcing data management and information-technology handling to so-called co-location operators such as Telecity and Interxion, where space is rented by rack, cage or room.

“Demand for data-centre services is evolving rapidly as enterprise data and digital applications migrate to the cloud,” Telecity said.

The tie-up, which will boost earnings from 2017, is “highly compelling” to the boards of both companies, Telecity said, with total cost and capital synergies estimated at about £600 million.

Interxion and Telecity won’t solicit or discuss alternative proposals until March 4, by which time a binding transaction is expected to be agreed, Telecity said. The deal is expected to complete in the second half of 2015 and is subject to shareholder and regulatory approval. However, it cautioned that there can be no certainty of a binding agreement or what the terms will be.

Telecity’s shares soared in response to the deal, trading up 15% to 977 pence in midmorning European trading.

Interxion, with a broad footprint across the continent, is an asset of strategic importance in the European [data-center market], says Simon Weeden, an analyst at Citi.

Barclays analyst Maurice Patrick said it creates the “dominant European independent retail co-location player,” with Cavendish analyst Nick Jones adding the merger is a “significant milestone” for the industry as it looks to consolidate.

Global Internet traffic will triple over the next five years, according to networking-hardware specialist Cisco Systems Inc., 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.

“Cloud, big data and mobile are driving significant data-center demand around the world so this announcement is in line with what we’re seeing in the market,” said Eric Schwarz, president of Europe, Middle East and Africa at Equinix, a Redwood, Calif.-based operator that has Google Inc. and Microsoft Corp. as clients.

Interxion Chief Executive David Ruberg will lad the combined group for 12 months following completion of the transaction, after which time the group will search for a successor, John Hughes, executive chairman of Telecity, told reporters Wednesday. Mr. Hughes will be chairman of the combined company.

Mr. Hughes, who declined to comment on whether there was also investor interest from private equity, which had previously been speculated, said the combined operator would do business in a “very substantial and large market” worth “billions of euros.”

Separately Wednesday, Telecity said its revenue in the year ended Dec. 31 rose 7.1% to £348.7 million.

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About Five 9s Digital, LLC

Five 9s Digital is a data center real estate company offering data center development, investment sales, real estate advisory, and colocation and wholesale data center selection and procurement services. Five 9s Digital has been involved in the development and ownership of multiple mission critical facilities from single user build-to-suit facilities to multi-tenant data centers. Five 9s Digital brings a wealth of experience, background and expertise in providing solutions to the data center arena. Due to the specific and yet evolving requirements of mission critical end users in today’s world, Five 9s Digital is able to offer real solutions, real facilities, and real choices due its extensive and up-to-date knowledge base. Five 9s Digital is a Best Data Sites Certification Alliance™ member.
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