Telecity acquires rival Interxion for $2.2 bn for ‘cloud’ expansion

Leading British data center provider Telecity Group Plc has agreed to merge its business with US-listed Interxion Holding NV for approximately £1.4 billion ($2.2 billion) in an all-stock deal to create a dominant co-location player in the European market.

Netherlands-based Interxion is a European provider of cloud and carrier-neutral data centre co-location services. New York-listed Interxion operates 39 data centers in major European metropolitan areas including London, Frankfurt, Paris and Amsterdam, spanning 11 countries.

The data centres offer space, power, cooling and security in which customers can house their computing network, storage and IT infrastructure and connect to a variety of service providers.

Under the terms of a the non-binding  transaction, Interxion shareholders will get 2.3386 new Telecity shares for each Interxion share they own, representing a 15-per cent premium to its closing price of $26.47 on 9 February.

Telecity has a market capitalisation of £1.98 billion ($3.1 billion) while Interxion is valued at $1.9 billion.

Shares of Telecity jumped 15 per cent to 975 pence in yesterday's trading in London, while Interxion was up 14 per cent at $31.80 in New York.

The demand for data centers, which house computers and telecom equipment to store vast amount of data, is on the rise as more and more customers use their smartphones and tablets to access data over the internet.

Companies are outsourcing data handling and management services to co-location data centers such as Telecity and Interxion to cope with the ever increasing demand for safe and secure storage of data.

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

Interxion has over 1,400 clients including many blue chip companies across sectors covering cloud, financial, outsourcing, digital media, telecom and enterprise, and houses more than 500 carriers and internet service providers and 20 European internet exchanges in its data centers.

The company's 2013 revenue was $307 million and it has around 450 employees.

London-based Telecity is one of Europe's leading providers of data centers, operating in 12 key city locations across Europe.

Yesterday, Telecity reported revenue of £349 million for the year ended December, up 7 per cent from last year.

Upon completion, Telecity shareholders will own about 55 per cent of the combined entity while Interxion shareholders the remaining 45 per cent.

The combination will yield cost and capital synergies of about £600 million, and boost earnings from 2017.

The boards of both the companies consider the deal ''highly compelling.'' A binding agreement is expected to be agreed by 4 March.

The transaction is expected to close in the second half of 2015, subject to customary closing conditions and regulatory approval.

Further to completion of the transaction, the combined entity will be headed by Interxion chief executive David Ruberg for a period of 1 year, after which a new successor will takeover. Telecity's executive chairman John Hughes will be the chairman of the merged company.

According to research data, global internet traffic is forecast to triple over the next five years, with mobile component rising 11-fold between 2013 and 2018. Cloud computing spending will nearly double to $286 billion in 2018 from 2014.