CenturyLink: The New Data Center Behemoth

CenturyLink (CTL) is suddenly one of the largest players in the data center business. After completing its purchase of Savvis, the company now owns 48 data centers in North America, Europe and Asia with more than 1.9 million square feet of raised floor space.


A little more than a year ago, CenturyLink was little known in the data center sector, as the Monroe, Louisiana company was focused on telecom and Internet connectivity. But not any more. After Friday's closing of its $2.5 billion acquisition of Savvis Communications, CenturyLink is suddenly one of the largest players in the data center business. The company now owns 48 data centers in North America, Europe and Asia with more than 1.9 million square feet of raised floor space.

"The combination of CenturyLink's hosting and network assets with Savvis' proven solutions in colocation, managed hosting and cloud services substantially enhances CenturyLink's capabilities and immediately provides the company with a solid platform for future growth," said Glen F. Post, III, chief executive officer and president of CenturyLink. "The transaction helps us meet the accelerating demand for cloud-based services through a robust hosting presence. CenturyLink is now positioned to address complex customer needs with our colocation, hosting and cloud products."

CenturyLink plans to integrate its hosting business with Savvis' managed hosting and cloud services later this year, with the combined business operating under the Savvis brand for the foreseeable future. The Savvis unit will remain based in St. Louis and led primarily by key members of the Savvis leadership team, including chief executive officer Jim Ousley.

CenturyLink (CTL) acquired 17 data centers in 12 cities around the U.S. in April 2010 when it bought Qwest for more than $10 billion.

Now Largest Tenant for Digital Realty

The completion of the Savvis deal also makes CenturyLink the largest customer of Digital Realty Trust (DLR), the real estate investment trust that specializes in the data center sector.  CenturyLink now leases 36 data centers from Digital Realty, representing 2.63 million square feet of total space and more than $76 million in annualized rent.

"We view this merger very positively, as it represents an upgrade in credit quality for our largest tenant," Digital Realty CEO Michael Foust said in a recent earnings call. "An acquisition of Savvis has been widely speculated in the market for months, so this was not unexpected."

Sure enough, as soon as the CenturyLink deal was completed, Moody's upgraded its credit rating for Savvis two notches to "Ba2."  Moody's concluded that being owned by CenturyLink materially enhances Savvis' standalone credit profile, despite the fact that CenturyLink doesn't plan to guarantee any of Savvis' debt obligations.

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