CenturyLink, Inc. said today that it has agreed to acquire Savvis, Inc. for $2.5 billion in cash and stock in a deal that will boost the telco's capabilities in managed hosting and cloud computing. CenturyLink's offer values Savvis (SVVS) at $40 a share, an 11 percent premium to Tuesday's closing price of $36.02.
CenturyLink is the third-largest telecom company in the U.S., having just completed an acquisition of Qwest. The transaction continues the consolidation in the managed hosting and cloud computing space, following deals in which Terremark and NaviSite were acquired by Verizon and Time Warner Cable, respectively.
Savvis Focus of Deal Speculation
Savvis (SVVS) has been widely rumored as a takeover target since shortly after the Verizon-Terremark deal was announced in January. In early March the company denied reports that it had hired an investment banker.
Under terms of the deal, Savvis stockholders will receive $30 per share in cash and $10 in shares of CenturyLink common stock. CenturyLink (CTL) will assume debt of approximately $700 million, placing the net value of the deal at $3.2 billion.
Buying Savvis will accelerate CenturyLink's ability to offer managed hosting and cloud services to its business customers. The combined company will operate 48 data centers located in North America, Europe, and Asia with more than 1.9 million square feet of gross floor space. It would also have a 207,000 route mile fiber network and a 190,000 mile global access network.
'Global Scale in a High-Growth Sector'
"The transaction creates a premier managed hosting and colocation provider with global scale in a high growth sector, and is expected to be accretive to revenue growth and cash flow per share," said Glen Post, III, CenturyLink chief executive officer and president. "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, while also enhancing value for our shareholders and providing opportunities for our employees."
"As migration to cloud-based services continues to accelerate rapidly, a strategic combination was a natural choice to create significant scale and become part of a large global network for the benefit of our customers, stockholders and employees," said James Ousley, chairman and chief executive officer of Savvis. "We believe that combining our proven capabilities in cloud infrastructure and managed hosting with CenturyLink's hosting assets and large base of business customers will create powerful opportunities to accelerate growth. We also look forward to making the full resources of a much larger network infrastructure available to our customers."
CenturyLink expects to realize approximately $70 million in annual operating cost and capital expenditure synergies.
CenturyLink anticipates integrating its hosting business and Savvis' managed hosting and cloud services into a single CenturyLink business unit. This integrated hosting business will be based in St. Louis and led primarily by key members of the Savvis leadership team, including Savvis CEO Ousley, who will head the unit.