Reports: Citigroup May Seek Merger or Sale

CNBC and the Wall Street Journal are reporting that Citigroup (C) may seek a merger, sell assets or even consider an outright sale of the company. The reports follow a two-day selloff that has seen shares of the huge banking company slide to less than $5 a share.  

The Wall Street Journal has details on behind the scenes activity at Citigroup as the bank’s leadership shifts into crisis control mode:

Citigroup’s board of directors is scheduled to have a formal meeting Friday to discuss the options, according to people familiar with the situation. Directors also have been talking by phone about what could be done to reverse the stock’s slide. Top executives were locked in meetings Thursday to hash out a stabilization strategy. Chief Executive Vikram Pandit scheduled a conference call for 8 a.m. Friday to discuss the situation with senior managers.

Obviously more to come on this story. Beyond the significance of Citigroup to the markets and credit system, the company is a major data center builder, having just opened a $450 million facility near Austin, Texas.

Wells Fargo, Not Citigroup, to Buy Wachovia

Remember that deal for Citigroup to buy Wachovia? Never mind. Instead of selling its banking operations to Citigoup with government asssistance, Wachovia has opted for a deal with Wells Fargo, which will buy all of Wachovia for $15 billion in stock. Wells Fargo will sell $20 billion in stock to help fund the deal.

So now Wells Fargo gets the Wachovia IT and data center assets we discussed earlier, including a $400 million data center in Birmingham, Alabama and two facilities in Winston-Salem, N.C.

$330 Million for Lehman’s Two NJ Data Centers

Barclays will pay $330 million for two Lehman Brothers data centers it is acquiring as part of a larger deal to purchase assets of the bankrupt investment bank. The two data centers are both located in New Jersey, in Piscataway and Cranford.  

The valuation emerged from a bankruptcy court hearing in which the purchase price for the real estate components of the deal were adjusted to $1.29 billion, including $960 million for Lehman’s New York headquarters and $330 million for the data centers. Lehman’s original estimate valued its headquarters at $1.02 billion but an appraisal this week valued it at $900 million.

Data Centers Key to Lehman Sale to Barclays

What assets remain solid when the value of nearly all other financial assets are called into question? Data centers.

Lehman Brothers’ real estate, including two data centers, proved central to a deal yesterday in which Barclays agreed to pay $1.75 billion to acquire most of Lehman’s North American operations. The data centers and Lehman’s headquarters building accounted for $1.5 billion of the deal’s value, with the British bank  paying just $250 million in cash for Lehman’s North American investment banking and capital markets businesses.

The Lehman sale provides echoes of the March deal in which JPMorgan bought the assets of Bear Stearns, in which Bear’s two data centers and headquarters building accounted for much of the value of the $270 million sale price.

Lehman to File Chapter 11 Tonight

Lehman Brothers is expected to file for bankruptcy protection Sunday night, according to the New York Times, running out of options after potential deals collapsed and federal regulators stuck to their position that Lehman was not “too big to fail.” The ripples have been immediate and dramatic:

• There are numerous reports that Merrill Lynch is in advanced talks to be acquired by Bank of America for $38 to $40 billion, with its board meeting tonight to decide on the offer. UPDATE: The deal is reportedly done, with Merrill selling to BofA at $29 a share.
• A consortium of banks is said to be discussing an emergency lending pool of up to $50 billion that could be used to aid financial companies with exposure to Lehman.
• American International Group (AIG) is reportedly preparing to announce a “comprehensive restructuring” early Monday in which it will sell key assets to raise capital.

What does this mean for Monday’s trading session? A large helping of fear for the market to digest, with a side helping of uncertainty and doubt. To track the fast-moving developments, check out the Wall Street Journal, DealBreaker, 24/7 Wall Street and CNBC.

Why Wall Street West Has Struggled

The Allentown Morning Call has a feature story exploring the failure of Pennsylvania’s Wall Street West project to attract any major financial data centers to the state. The article cites several factors, especially the lack of any existing fiber infrastructure or facilities. Wall Street West officials admit that interest in the project from top financial firms has waned, and some officials are now emphasizing its potential for boosting job training, rather than attracting facilities and jobs.

Wall Street West is a partnership of more then two dozen organizations and agencies working to promote northeastern Pennsylvania as a destination for backup data centers for Wall Street firms. Thus far the initiative has attracted one company, which will create 10 jobs. Level 3 was hired to build a $40 million high-speed fiber network between lower Manhattan and East Stroudsburg, Pa. But the Morning Call reports that work on the line won’t begin until financial services firms commit to locate in the region and buy services from Level 3, creating a chicken vs. egg challenge, since tenants are reluctant to commit to huge investments in data centers with no existing fiber.

NJ Data Center Campus Moves Forward

Plans for a huge data center campus in Old Bridge, New Jersey continue to move ahead. This week the developers of the planned 1.4 million square foot Deep Run Corporate Campus cleared another hurdle in the local planning process, moving the project closer to a final approval in June.

The developers, Deep Run Corporate Campus LLC, want to build four 350,000 square foot data centers on 300 acres of land within the Crossroads property, which is owned by Old Bridge township. The huge project hopes to attract Wall Street financial firms seeking backup data centers for storage and disaster recovery.

New York ‘Donut’ Boosts NJ Data Centers

It’s known as “the donut,” and it defines the hottest locations for data centers serving Wall Street financial institutions. Its inner and outer boundaries are established by criteria for disaster recovery, including the blast radius of a nuclear attack and the limitations of real-time data replication. Power considerations take several more big bites out of the donut.

What’s left is a ring of land in New Jersey that has become the focal point of data center development for New York’s financial industry and enterprise companies. Many data centers in northern New Jersey are at or near capacity, and suitable development sites in those counties are becoming scarce.

“There is no data center space in the New York and Northeast corridor,” said said Shally Bansal Stanley, managing director for global services at Acumen Solutions. “It’s driven a lot of companies to change how they buy build and manage their data centers.” Stanley moderated a panel on data center real estate at DataCenterDynamics New York last week, which focused on the challenges of finding colocation space or building data centers in the New York market.

“Site selection is really a challenge in the New York area,” said Jim Smith, vice president of engineering at Digital Realty Trust. “The doughnut - a 30 kilometer to 70 kilometer circle around New York - defines the space where you can look. There’s lots of sites. But finding the right combination of location power and security is the challenge. A lot of our processes began months in advance. We spend a lot of time driving around with PSE&G guys looking for power.”

Morgan Stanley Plans NJ Data Center

An affiliate of Morgan Stanley has bought land in Franklin Township, N.J. for a backup data center for the New York-based financial services firm. Morgan Stanley Management Services II Inc. paid $12.3 million to purchase 17 acres of land from the J.G. Petrucci Company.

Morgan Stanley’s project has been in the works for two years, and will join several other data center projects in the area bordering Rutgers University in central New Jersey. The Bank of New York also has a data center in Franklin Township, while Savvis Inc. (SVVS) and AT&T (T) have facilities in Piscataway.

In 2006 Morgan Stanley gained approvals from Franklin Township for a 330,000 square foot data center, and also arranged for $106 million in structured financing from the New Jersey Economic Development Authority (NJEDA). It’s not clear why Morgan Stanley delayed purchasing the property for another 18 months.

Wall Street West Tenant is Acquired

The sole announced tenant for Wall Street West, the state of Pennsylania’s data center development initiative, has been acquired. Perimeter eSecurity announced Tuesday that it has bought Secure Electronic Communication Compliance Archival System (SECCAS), a leading outsourced provider of e-messaging compliance services.

Last April SECCAS announced that it would open a secondary data center in Scranton, Pa. The Pennsylvania facility is intended to provide full redundancy for its New York City operations and also serve as the primary location for the firm’s litigation-readiness (e-discovery) business. SECCAS is the first and thus far only company to announce a commitment to Wall Street West. It was not immediately clear what effect the acquisition might have on SECCAS’ data center plans.

The Wall Street West initiative is backed by a $15 million investment from the federal government and more than $6 million from the Commonwealth of Pennsylvania. Local and state officials believe they can build a successul project atop data backup mandates from the Federal Reserve, SEC and Office of the Comptroller of the Currency. Level 3 has been hired to build a high-speed fiber network between lower Manhattan and East Stroudsburg, Pa., which is expected to be completed sometime in 2009.