CenturyLink will buy Savvis for $2.5 billion, plus net debt of approximately $0.7 billion, the telecompetitor announced today. The deal illustrates that M&A activity in the telecom sector as a whole, and with CenturyLink specifically, is far from over.
Under the terms of the deal, Savvis shareholders will receive $30 per share in cash and $10 in shares of CenturyLink common stock (subject to conditions). The price represents a 11% premium over Savvis’ April 26th closing price and a 53% premium over their share price from the beginning of the year.
CenturyLink adds a significant presence in the fast growing cloud infrastructure and data center business lines with the acquisition. Savvis has close to 2,500 clients, including 32 Fortune 500 companies, offering them hosted IT and cloud services.
With the acquisition, CenturyLink will operate 48 data centers across North America, Europe, and Asia with more than 1.9 million square feet of gross floor space. With Qwest’s prized fiber network, the combined CenturyLink-Savvis will have a national 207,000 route mile fiber network, and 190,000 miles globally. The new combined company will employ 50,000 people (as of April 26th).
“Today, businesses are shifting the way they manage their information technology services and infrastructure, and this transaction helps us meet these needs by offering Savvis’ leading products and services coupled with CenturyLink’s network. We look forward to working with the Savvis team to leverage CenturyLink’s significant scale and scope to fully realize the potential of Savvis’ capabilities for our combined customers …,” said Glen F. Post, III, CenturyLink chief executive officer and president.
CenturyLink intends to form a new managed hosting and cloud services business unit with the Savvis assets and base it in Savvis’ home town of St. Louis. The new business unit will be led by current Savvis CEO James Ousley.
The move illustrates the ongoing desire of service providers to tap the business opportunities of managed IT and cloud services. This desire is especially acute for service providers like CenturyLink and Windstream, since neither of them have significant wireless assets. As traditional telephony services continue to decline, they hope enterprise and cloud services will provide a needed growth engine, since they don’t have that wireless growth luxury.
CenturyLink is pursuing this strategy through large ‘blue chip acquisitions, while Windstream is being more surgical, scooping up smaller acquisitions, but with more frequency. Expect the trend to continue, both at this level, and with smaller tier 2 and 3 service providers as well.