Well, put me down as surprised - I didn't think Savvis (news, filings) [a subsidiary of CenturyLink (NYSE:CTL, news, filings)] would actually sell. But then, I didn't think that CenturyLink (NYSE:CTL, news, filings) would offer $40 per share either, and that's exactly what they did. And thus we have a deal. Today, CenturyLink agreed to purchase Savvis for approximately $2.5B in cash and stock, plus the assumption of net debt of about $650M. This follows much speculation over the past two quarters about the next big cloud M&A by a telecommunications company, in which Savvis has been the poster child. Last fall, the company's stock was trading at around $20, but it has risen steadily on a tide of speculation since and prior to this deal had been at $36. So while the premium today is a mere 11%, it's much better than that since all the hoopla started.
CenturyLink's purchase comes on the heals of its recent completion of the Qwest deal, and looks a whole lot similar to Verizon's purchase of Terremark and to a lesser extent the purchase of Navisite by TW Cable. Of all the independent colocation providers, Savvis has been the most active in the managed services and cloud space with a big presence in the financial sector. CenturyLink thus gains a leg up with a customer base it has never really targeted in its history as an ILEC, not to mention a rather large colocation footprint in the big markets. The combined footprint consists of 48 datacenters and 1.9M square feet.
Savvis also comes along with a Tier 1 IP and fiber network that will surely be merged with the Qwest longhaul network. Savvis hasn't been investing in its network beyond serving its hosting and colocation clients for some time, and its presence as a Tier 1 IP transit network has waned over the years. Their US fiber network is based on a few fibers on the Level 3 network that it inherited from Cable & Wireless America. Those routes therefore will add diversity to the original Qwest longhaul footprint.
But what CenturyLink is really after, according to most, is that foot in the door with cloud services. Last year, Savvis had a bit over $15M in revenues from the cloud, which is actually pretty good considering how young the area is. But on a relative basis, the cloud part of all this is obviously for the future. And on that front, everything remains foggy for all involved, IMHO, but what else is new. CenturyLink will integrate Savvis with the rest of its hosting and colo operations into a combined unit based in St.Louis and headed by Savvis CEO Jim Ousley and other key members of Savvis's management.
Savvis shareholders will get $30/share in cash plus $10/share in CenturyLink Stock. CenturyLink anticipates finding $70M in annual run rate synergies. The good news is that I think there probably won't be major layoffs from this deal, as there isn't all that much overlap on that front.
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