Equinix May Seek More Deals After $3.6 Billion Telecity Takeover

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Telecity's Data Center

Telecity has 5 locations in London's Docklands district. Photographer: Ed Tyler/Telecity Group via Bloomberg

Equinix Inc. said it may seek more deals after agreeing to buy Telecity Group Plc for 2.35 billion pounds ($3.6 billion).

Equinix is creating a trans-Atlantic data-center operator, scuttling its target’s planned merger with Interxion Holding NV of the Netherlands, as the industry consolidates.

“When we thought about this deal structure, the consideration was balancing our capital structure and allowing us to maintain some strategic and operational flexibility,” Chief Financial Officer Keith Taylor said in a call with analysts Friday. “We’ll have the flexibility to some degree to think about what else is out there.”

The Redwood City, California based company is paying a mixture of cash and stock that equals 1,145 pence a Telecity share in a deal recommended by the U.K. company’s board. That’s 5 percent more than the stock’s closing price in London on Thursday. Data-center providers are merging as consumers and companies use more of their services to store information remotely and access it on mobile phones, tablets and computers.

Equinix first approached London-based Telecity early in May, two months after Telecity agreed to merge with Interxion.

Telecity shares fell 1.1 percent to 1,078 pence in London Friday. Equinix declined 0.5 percent to $267.94 in New York at 12:01 p.m. and Interxion was down 1.8 percent to $30.65.

“Equinix is definitely getting this for a good price given the strategic fit and the strategic value of Telecity’s network hubs,” Jefferies LLC analyst Milan Radia said in an interview. Telecity is coming off of a period where customers reduced the capacity they were taking from the business, he said. Equinix’s churn has been at the same level for the past few quarters, Erik Schwartz, its head of Europe, Middle East and Africa, said in an interview by telephone.

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Interxion spokesman Jim Huseby declined to comment beyond a statement confirming the end of the deal. In case Equinix’s agreement is terminated, Equinix would have to pay Telecity a fee of 50 million pounds.

Equinix plans to operate globally and Telecity gives it presence in new markets, including in the U.K., Ireland and the Nordic region, Schwartz said. Telecity also operates in smaller markets that have strong growth prospects, such as Warsaw, Sofia and Istanbul, he said.

The acquisition will also result in savings, including “revenue synergies, capex synergies and opex synergies,” Schwartz said. It’s too early to quantify the savings, he said.

There has been a surge in offers for U.K. technology and telecommunications equipment this year as buyers take advantage of Britain’s relatively low tax rates. The amount buyers have agreed to spend has more than doubled so far this year, according to data compiled by Bloomberg.

Suwanee, Georgia-based Arris Group agreed to buy Pace Plc, a T.V. set-top box maker from Yorkshire, for $2.1 billion in April. Qualcomm Corp. agreed the purchase of the U.K.’s CSR Plc in October in a deal expected to be completed this summer.

Telecity’s operations range from Dublin to Sofia and Istanbul to Stockholm. Equinix works in the U.S., Canada, Brazil, several countries in Europe and Asia, the United Arab Emirates and Australia.

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