Switch and Data (SDXC) recently moved to settle three lawsuits related to the sale to Equinix. A memorandum of understanding between Switch and Data and lawyers for plaintiffs would have all claims dismissed with prejudice in return for attorneys fees and costs, estimated at about $900,000.  

“Switch and Data and the other defendants deny all of the allegations in the lawsuits and believe that the existing disclosures regarding the proposed merger are appropriate under the law,” the company said in an SEC filing. “Nevertheless, Switch and Data and the other defendants have agreed to settle the putative class action lawsuits in order to eliminate the risk, burden and expense of further litigation, to fully resolve all claims raised in the lawsuits, to permit the merger to be consummated without the risk of injunctive relief or delay, and to permit Switch and Data’s stockholders to receive the consideration provided for in the merger.”

A map of the combined data center footprint of Equinix and Switch and Data.

Colocation provider Switch & Data (SDXC) said today that its planned $700 million sale to Equinix will be delayed by a request for additional information from federal antitrust regulators. The transaction is now likely to close in the second quarter of the year, rather than the first quarter as additionally anticipated, the company said today in a filing with the Securities and Exchange Commission. Switch and Data said it will go forward with a Jan. 29 meeting at which its shareholders will be asked to approve the deal.

The acquisition of Switch and Data by Equinix (EQIX), which was announced Oct. 21, combines two of the largest players in the market for colocation and interconnection services, and gives Equinix a presence in 16 new markets across North America. Shortly after the deal was announced, Equinix submitted information about the transaction to the Antitrust Division of the Department of Justice and the Federal Trade Commission as required under the Hart-Scott-Rodino (HSR) Antitrust Act.

After consulting with regulators, Equinix re-filed its submission on Dec. 7, starting a 30-day waiting period for the antitrust review, which was to expire Wednesday.

“On January 6, 2010, Equinix received a Request for Additional Information (commonly referred to as a ’second request’) from the Antitrust Division in connection with the Antitrust Division’s review of the Merger,” Switch and Data said in its filing. “This second request extends the waiting period imposed by the HSR Act until 30 days after Equinix has substantially complied with the second request unless that period is extended voluntarily by Equinix or terminated sooner by the Antitrust Division. Equinix intends to respond promptly to the second request and now expects the merger to close in the second quarter of 2010.”

The SEC filing did not discuss any details of the information request from regulators, or whether it would have any impact upon the deal beyond the planned closing date. Requests for additional information from regulators are not uncommon in large acquisitions.

In an Oct. 21 conference call, several Wall Street securities analysts wondered whether the deal might invite antitrust scrutiny.”Rest assured, we’ve looked hard at this,” said Equinix president and CEO Steve Smith. “We are taking a position that the North American hosting market is a competitive market.”

Equinix says it has “low single digit” market share of a broadly-defined market that includes web hosting providers as well as colocation and wholesale data center providers. But Equinix and Switch and Data are arguably the two largest players in North America in the narrower niche of carrier-neutral colocation and peering services.

The biggest deal in the data center industry for 2009 was the news that Equinix (EQIX) would acquire Switch and Data in a $689 million transaction. As the year draws to a close, we’re learning more about the behind-the-scenes maneuvering that led to the deal, in which Switch and Data (SDXC) spent months weighing competing bids from Equinix and an international provider.

The negotiations with the rival suitors, which began in earnest in April and concluded in late September, are detailed in an SEC filing by Equinix. The existence of a rival suitor for Switch and Data was first noted by Paolo Gorgo in an analysis at Seeking Alpha last week.

In January Switch and Data was approached by “a privately-held firm in its industry based outside of the United States” to discuss a possible business combination. This international company proposed a merger of equals with Switch and Data, which emphasized that it was not for sale but began discussions in March.

Equinix contacted Switch and Data in April to express interest, kicking off five months of talks. Equinix dropped out of the talks in mid May, but resumed discussions in early July. On Sept. 26, the Switch and Data board determined that the Equinix bid – which represented a 32 percent premium to its stock price – was the best outcome for its shareholders.

Who was the mystery suitor? Paolo notes that the description fits Interxion, which already had a joint marketing agreement with Switch and Data. At the time, we noted that the partnership “appears to be a competitive response to the growth of Equinix, which acquired IXEurope last fall, providing it with facilities in major Internet markets on both sides of the Atlantic.”

The description could also fit KDDI, the Japanese company that owns colocation and peering providers Telehouse America and Telehouse Europe. KDDI has been actively expanding its Telehouse network in Europe and Asia, but has not announced plans for expansion in the U.S. beyond its three existing facilities.

Averting A Global Competitor
By stepping up to outbid the international firm, Paolo notes that Equinix was able to “avoid the creation of a global competitor in the sector, and stopped a foreign entity from achieving a US listing (without going through an IPO) and a strategic footprint in the most important market for the colocation sector.”

The acquisition was also driven by the economics of data center development, allowing Equinix to enter new geographics and add capacity in key existing markets for less than it would have cost to build new facilities in those locations.

The Equinix-Switch and Data deal combines two of the largest players in the market for colocation and interconnection services, and gives Equinix a presence in 16 new markets across North America, including Atlanta, Denver, Miami, Seattle and Toronto.

Equinix will integrate Switch and Data’s data center business and operations, including the company’s 34 data centers in 22 markets in the U.S. and Canada. The acquisition will add more than 1 million gross square feet of data center capacity, bringing Equinix’s total global footprint to more than 6 million square feet across 79 data centers in 34 markets in North America, Europe and Asia-Pacific.

Vote Set For Jan. 29
The deal is currently undergoing regulatory review, and Switch and Data shareholders are scheduled to vote on the Equinix proposal at a Jan. 29 shareholders meeting.

The deal may have additional ripples as competitors weigh their strategic options going forward. The Sunday Times of London reports that Interxion may be planning an IPO in 2010. The paper says the company has been in discussions with investment banks about a public offering on the NASDAQ market.

It’s important to note that this is not the first time UK media have predicted an Interxion offering. Exactly two years ago the Guardian wrote that Interxion was discussing an IPO with investment banks. Instead, the company remained privately held and raised $190 million to continue its aggressive expansion of its data center network, which now spans 26 facilities in 11 countries.

Teams arrived at Switch and Data Tuesday to begin integration plans for the company’s planned $689 million acquisition by Equinix. Switch and Data plans to file its proxy statement with the SEC by the end of November to give out more information surrounding the transaction for an overall vote expected to take place in the first quarter of next year. In the meantime, both companies are keeping busy, issuing a series of news announcements this week.

On Monday, enterprise video solution provider Kontiki announced that Equinix had selected their Enterprise Content Delivery Networking (ECDN) solution to deliver video content to every employee’s desktop worldwide.  Kontiki was deployed in a matter of weeks and will deliver high-quality video for training and employee communications. 

Equinix Adopts Kontiki
“As video becomes more ubiquitous throughout our company, we knew that we’d need a complete video infrastructure in place that could grow with our needs,” said Equinix CIO Brian Lillie. “We adopted Kontiki’s video solution portfolio based on ROI, scalability and ease of use.” 

 On Tuesday Kontiki also debuted the VideoCenter enterprise employee video portal, being demonstrated this week at Streaming Media West 2009 conference in San Jose.  The Kontiki VideoCenter delivers on the promise of “YouTube for the Enterprise” by overcoming the challenges of securing and controlling the communication tool in a way that is consistent with company policies and culture.  The Kontiki VideoCenter will be generally available in February 2010.

Equinix (EQIX) announced that FXall will offer connectivity to its foreign exchange platform within the Equinix New York 4 data center inS ecaucus, NJ. FXall is a leading multibank foreign electronic platform. The service will be available to trading companies within the Equinix Financial eXchange, allowing them the benefit of directly exchanging data within the same physical location. 

“Beyond benefitting our current financial community customers, FXall’s presence will hopefully attract new customers to our NY4 center and serve as a spring board for future FXall growth initiatives,” John Knuff, director, Business Development at Equinix.

Switch and Data announced Tuesday its Alliance Partners Practice. During a two year incubation the program supported leading channel partners with online tools, partner certifications and dedicated relationship managers designed to meet the unique needs of value added resellers, system integrators, and solution providers.  The expansion of this program will enroll additional Authorized Agents looking for new ways to generate reliable revenue.  The Alliance Partners Program is made up of a team of professionals with 50 plus years of combined channels sales experience.

• Hibernia Atlantic expands to two Equinix data centers. Submarine transport cable provider Hibernia Atlantic announced Tuesday the expansion of its Global Financial Network(GFN) into the Equinix New York-2 and New York-4 data centers in Secaucus, New Jersey.  The expansion from Hibernia aims to provide low latency, redundancy and connectivity to global banks and exchanges in the New York metro area.  Hibernia’s GFN spans 24,000 Kilometers (14,913 miles) of fiber optic cables across key financial cities around the world.  “Our continued GFN expansion in New York metro and in other major financial centers reflects our core commitment to provide ‘security through diversity’—our company philosophy that offers world-class, redundant solutions to our financial customers,” said Bob McMann, VP of Provisioning and Procurement for Hibernia
• Switch & Data selected by Pragma Securities. Switch & Data announced that Pragma Securities, a trading solutions provider has selected their New York Financial EcoCenter to optimize the performance of its quantitative trading solution.  After an extensive diligence process Pragma selected the North Bergen, New Jersey data center to host its trading execution services, and will be one cross connect away from the other electronic trading customers in the site.
• Nimsoft introduces alliance program. Following the October launch of their Unified Monitoring Solutions, Nimsoft announced their charter members in the Unified Monitoring Alliance Tuesday.  The new monitoring solution provides a total, unified view of both internal and external IT resources.  The Unified Monitoring Alliance partners are made up of service providers, solution partners and technology development partners.  Partners like FusionStorm, Ingram Micro, Shavlik, Service-now.com, Rackspace and many others are among the first to join the alliance.  “The alliance not only expands opportunities for growth and collaborative innovation for our partners, but also effectively increases the breadth and depth of the systems monitoring and management solutions that Nimsoft offers to its customers,” said Nimsoft President Gary Read said
• The Planet signs Ayuda Networks. The Planet announced Tuesday that Ayuda Networks has signed on to join the company’s recently launched Partner Plus program.  Ayuda Networks consults with clients to evaluate connectivity requirements and implement the best solutions for their specific business.  Ayuda will add The Planet to its portfolio of top-tier solution providers and include them in recommendations to clients evaluating managed and dedicated hosting, as well as colocation services.

The construction project is moving forward because the Atlanta market figures in Equinix’ expansion plans. Atlanta is one of the five cities Equinix identified as key expansion markets where its existing customers are looking for colocation space and interconnection opportunities. Equinix doesn’t currently operate any facilities in Atlanta, but Switch and Data has a data center at the city’s primary carrier hotel at 56 Marietta, as well as the expansion space it leased last year at 180 Peachtree Street .

The presence at 56 Marietta provides the network connectivity that is central to the Equinix business model, while the 79,000 square feet of space at Peachtree Street adds the larger footprint typical of Equinix’ big-city approach. Switch and Data will interconnect the new site to its 27,000 square foot data center at 56 Marietta, providing immediate access to multiple network service providers. It will also offer its PAIX Internet exchange service in its Peachtree site

180 Peachtree is an 8-story, 658,000 square foot building built in 1927. The building was bought in 2000 by Taconic Investment Partners, which invested $24 million to adapt the facility’s upper floors for telecom and data centers use. Level 3 expanded its operations at 180 Peachtree in 2003 after Macy’s closed its store on the lower levels of the building. Taconic sold the building in March 2007 to Peachtree Carnegie LLC, which recently leased the former Macy’s space on the lower three floors to 180 Peachtree Retail Group, a partnership of Atlanta investors.

The site will be built out in phases, Switch and Data said. Phase one will provide space for 500 cabinets and is expected to open in the third quarter of 2010. The site will yield a total of 1,450 cabinet equivalents when all phases are complete.

“Our Atlanta market expansion builds on our plan to help our customers accelerate their Internet-centric businesses with high performance and availability,” said Ernie Sampera, Senior Vice President and CMO for Switch and Data

• The Planet Reports Third Quarter Results. Hosting company The Planet discussed results for the third quarter of 2009 Tuesday. “Our performance this quarter provides cautious optimism about an emerging economic turn-around, with indicators moving in the right direction,” said Chairman and CEO Douglas J. Erwin said. “Our business experienced an upturn with new, more complex transactions and a healthier, more robust pipeline of opportunities than we’ve seen during the past three years.” Highlights of the quarter included a new partner plus channel program, hiring CAPSTAR commercial real estate to lease Dallas space, and joining the Microsoft BizSpark program.
• Juniper and Dell Collaborate.  Juniper Networks (JNPR) has had a flury of news lately, with an announcement Tuesday that it will collaborate with Dell to offer networking solutions under Dell’s PowerConnect brand.  Additionally the two companies plan to work on open, standards-based solutions for virtualized data centers and deliver technology solutions using Converged Enhanced Ethernet.  Dell plans to market, service and support Juniper’s high-performance networking solutions to its large enterprise, small and medium business customers and public organizations.  Juniper also announced that Australian Government superannuation administrator ComSuper has selected Juniper Networks to implement a completely new network infrastructure based on Juniper’s EX Series ethernet switches and Unified Access Control solution.  A third announcement Tuesday reported that Juniper’s executive and management team will ring the NYSE opening bell on Thursday, October 29th.

• Cisco Announces Intent to Acquire ScanSafe. Continuing the ramp-up in acquisitions, Cisco announced the intent to acquire Software-as-a-Service security provider ScanSafe.  Building on the previous acquisition of IronPort, Cisco is building on the web security market, which is expected to grow to $2.3 billion by 2012.  ScanSafe’s service will be integrated with Cisco AnyConnect VPN client and will allow Cisco to provide new cloud-security services for customers anywhere in the world.
• Switch and Data Third Quarter 2009 Results. Tuesday Switch and Data released financial and operating results for the quarter ending September 30, 2009.  The press release addresses the merger with Equinix as “subject to customary closing conditions, including the approval of Switch and Data’s stockholders and regulatory approvals.”  Total revenues for the quarter increased 21.4% to $53.5 million from $44.1 million in the comparable period in 2008.  Operating income increased 50.5% to $21.0 million in the third quarter of 2009 as compared to $3.8 million in the comparable period in 2008.  Net income was $2.6 million, with earnings per share at $0.07 per basic and diluted share.  The number of customers went from 988 in 2008 to 935 in in 2009 and cabinet equivalents billed of 8,110 in 2008 compared to 7,347 in 2009.

Why is Equinix spending $698 million to acquire competitor Switch & Data? It was a “buy vs. build” decision writ large, with data center economics driving the math. Here’s what Equinix was able to buy for that $698 million (plus another $142 million to assume Switch & Data’s outstanding debt):

• 1.1 million square feet of data center space
• 979 paying customers and $171.5 million in annual revenue
• Additional data center capacity in Expansion space in three kley markets – Northern New Jersey, Silicon Valley and Dallas – where Equinix is running out of data center space.
• Overnight entry into 15 new markets, including five cities – Atlanta, Denver, Miami, Seattle, and Toronto – that were identified as key expansion markers by Equinix customers.

How much would it have cost Equinix to build new data centers in those five cities? Or to build more space in New Jersey, Silicon Valley and Dallas? Equinix clearly determined that it would be cheaper to buy Switch & Data, which shares its carrier-neutral colocation model and focus on interconnections.

“While new data center builds can take more than two years in planning and construction, the acquisition of Switch and Data provides an immediate entry into several key U.S. markets where Equinix does not currently have a presence,” Equinix said in a customer FAQ. “In addition, existing Switch and Data assets in markets where Equinix currently operates provide opportunities for expansion and creating additional capacity.”

Just 20 Percent in Cash
The structure of the deal also allows Equinix to gain new facilities and markets with a minimal outlay of its own cash. Just 20 percent of the $689 million purchase price will be paid in cash, with the remainder being paid in shares of Equinix stock.    

In a conference call following yesterday’s announcement, several analysts wondered whether the deal might invite antitrust scrutiny.”Rest assured, we’ve looked hard at this,” said Equinix president and CEO Steve Smith. “We are taking a position that the North American hosting market is a competitive market.”

But which market? Equinix says it has “low single digit” market share of a broadly-defined market that includes web hosting providers as well as colocation and wholesale data center providers. But Equinix (EQIX) and Switch and Data (SDXC) are arguably the two largest players in North America in the narrower niche of carrier-neutral colocation.

Few Details on Integration
Smith and Switch and Data CEO Keith Olsen didn’t offer details on how the two companies will be integrated, but noted that the companies are familiar with one another.

“We’ve known Keith and his team for a long time,” said Smith. “At one point we made a phone call and had a conversation. There’s a common business model between these companies and there’s obviously going to be overhead we can look at. Our teams have spent a lot of time together. We have a pretty good plan.”

Olsen said there is some overlap in customers between the two companies, primarily among large content companies and network providers.

As for the company’s facilities, there is a limited amount of duplication. While the companies share a carrier-neutral colo model, Equinix has focused on large Internet-centric markets, while Switch and Data has maintained a much broader geographics focus, serving 22 cities.

Additional Capacity for Equinix
In the markets where the two companies compete, Equinix sees opportunity. Switch and Data’s data centers are 61 percent filled, compared to an 80 percent utilization rate for Equinix. That additional space will be particularly welcome in Silicon Valley, northern New Jersey and Dallas.

“This gives us more capacity in three markets where we have high fill rates,” said Equinix CFO Keith Taylor. “We’re going to take advantage of that capacity. We think that capacity will fill up more rapidly than we expect.” Taylor and Smith said Equinix had no plans to shelve any of its expansion plans.

In the past, Equinix has invested in upgrades to bring acquired facilities on par with its company-built data centers, a process sometimes referred to as “Equinization.” Smith hinted that they may follow a different path with Switch and Data’s facilities.

“We are still in the analysis phase,” said Smith. “It will probably give us the opportunity to tier our services. It provides us the ability to support multiple kinds of customers.”

In a blockbuster deal for the U.S. colocation sector, Equinix (EQIX) has agreed to acquire Switch & Data Facilities (SDXC) for $689 million in cash and stock, the companies said today. The deal is priced at $19.06 a share, representing a 32 percent premium to Switch and Data’s closing price of $14.40.

The deal combines two of the largest players in the market for colocation and interconnection services, and gives Equinix a presence in 16 new markets across North America, including Atlanta, Denver, Miami, Seattle and Toronto.

“As we have moved to a global service delivery platform with the integration of our European and Asia-Pacific operations, we have seen increasing customer demand in existing and new markets to provide solutions to support lower latency application requirements into new markets and additional key Internet markets,” Equinix said in an FAQ about the deal.

Deal Adds 1 Million SF of Space
Equinix will integrate Switch and Data’s data center business and operations, including the company’s 34 data centers in 22 markets in the U.S. and Canada. The acquisition will add more than 1 million gross square feet of data center capacity, bringing Equinix’s total global footprint to more than 6 million square feet across  79 data centers in 34 markets in North America, Europe and Asia-Pacific.

“The strategic acquisition of Switch and Data by Equinix further strengthens Equinix’s position as the most comprehensive global data center services provider across North America, Asia-Pacific and Europe,” said Steve Smith, president and CEO of Equinix. “Our complementary business models, coupled with Switch and Data’s broad North American market coverage, provide a platform for strong growth as well as an opportunity to accommodate our customers’ demands for additional services.”

While Equinix has focused its business on the major Internet and financial markets, Switch and Data has built a network of carrier-neutral data centers that extends into second-tier markets. It also has a strong interconnection business built upon its acquisition of peering pioneer PAIX in 2002.

Focus on Financial Sector
In recent months Switch & Data has sharpened its focus on hosting high-value trading applications for financial institutions, a key strategic market in which Equinix is among the market leaders. Last year Switch and Data opened a large new data center in North Bergen, N.J. where it now hosts several financial tenants.    

“The combination of Switch and Data’s North American site footprint and Equinix’s global reach will increase our addressable market, enhance our customers’ value, and drive incremental value to our stockholders,” said Keith Olsen, president and CEO of Switch and Data. 

The companies intend to complete the transaction in the first quarter of 2010.

Switch and Data stockholders will have the opportunity to elect to receive either 0.19409 shares of Equinix stock or $19.06 in cash for each share of Switch and Data stock. The overall consideration to be paid by Equinix in the acquisition will be 80% Equinix stock, 20% cash.

Switch and Data said the decision to seek expansion funding was driven by strong demand in its sales pipeline. “Improved bookings combined with increasing customer demand afford us the opportunity to accelerate our investments for growth,” said Keith Olsen, CEO and President of Switch and Data. “Network-centric companies are rolling out multiple new service offerings which continue to demand more infrastructure and interconnection capacities across more local, regional and global markets.”

In September 2008 Switch and Data leased a 79,200 square foot facility in at 180 Peachtree Street in Atlanta, a former Macy’s department store that now houses data center space for companies including Level 3.

The $100 million is in the form of delayed draw term loans, governed by an amendment to the company’s existing credit agreement. Switch and Data can draw down the loans over the next year, with interest set at 4.50 percent above a 2 percent LIBOR floor. Switch and Data will pay off the loan between 2011 and 2014.