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Time Warner Cable bags NaviSite for $230m

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Time Warner Cable is buying cloudy hosting company NaviSite for $230m cash.

A spinout of the AOL-Time Warner mega-conglomerate that runs the Road Runner Internet service in 27 states in the US, TWC has cloudy aspirations just like other service providers. Rather than build its own cloudy infrastructure service to fluff up its Business Class Road Runner service with managed and cloudy hosting, which burns time and money, the cable company is just buying a cloudy puffer.

NaviSite operates ten data centers in the United States and the United Kingdom, including two high-end SAS 70 Type II centers. The hosting company runs a network operation center in its headquarters in Andover, Massachusetts, and another one in Guragoan, India. NaviSite has 570 employees and more than 1,200 managed hosting customers.

What NaviSite has not had historically is a lot of profits, just like larger hosting and cloud rival Terremark, which was borged by telecom and ISP giant Verizon for $1.4bn last week. NaviSite posted sales of $33.4m in its most recent quarter ended October 2010, with a loss of $2.2m.

Ignoring a $20.5m gain on the $65m sale of an application hosting business (for Lawson ERP and Kronos HRM applications) in early 2010 and losses from discontinued operations over the prior five fiscal years ended in July, NaviSite has lost a combined $64m on $612.9m of revenues. To say that hosting and clouds are tough businesses is an understatement.

Nonetheless, even paying a 33 per cent premium over Tuesday's closing price for NaviSite, as Time Warner Cable has done, is cheaper that trying to build up a cloudy infrastructure business from scratch. And Time Warner Cable says there is a cumulative $40m in tax savings it will be able to book from net operating losses at NaviSite as it borgs its own baby cloud provider.

NaviSite, like Terremark, has built its cloud, called NaviCloud, on VMware's vSphere hypervisor stack and vCloud cloud management fabric and is chasing corporate customers that already use VMware's virtualization tools internally. The NaviCloud was launched in October 2009, and NaviSite is one of the early adopters of Cisco Systems' "California" Unified Computing System blade servers, which feature converged networking for systems and storage.

NaviSite was founded in 1998 and quickly went public on the NASDAQ exchange during the dot-com boom a year later.

The company shook off a takeover attempt last summer by Atlantic Investors, a private equity firm that had a 36.6 per cent controlling stake of the hosting company. Atlantic Investors offered $3.05 per share in an unsolicited bid back on July 12 last year, a mere 16.4 per cent premium over the NaviSite stock price the day before the bid was received.

NaviSite rejected Atlantic Investors' advances on August 6, and the company's chairman, Arthur Becker, who had ties to Atlantic Investors, stepped down and was replaced by Brooks Borcherding, previously the company's president.

Time Warner Cable expects the NaviSite acquisition to close in the second quarter. Of course, another hot-to-trot telecom or cable company could try to outbid the cable giant for NaviSite. Hosting companies seem to be as popular as storage companies these days. ®

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