Digital Realty chucks $8.4bn at Interxion for colocation mega-merger

Acquisition cracks Europe for US data centre giant

US data centre biz Digital Realty is proposing a takeover of Dutch colocation flogger Interxion for an eye-popping $8.4bn.

The move comes 22 months after Digital Realty's $7.6bn all-stock deal to snaffle DuPont Fabros in late 2017 – one of the fattest data centre buys that year – and around 11 months since the slurp of Brazil-based bit barn biz Ascenty for $2.25bn.

The latest proposal will be a boost for Digital Realty's capacity in Europe, where it currently has a presence in four cities. Interxion will add 13 cities to this list, and take the local operation to anticipated revenue of $1.1bn, behind the biggest player in the continent, Equinix at $1.8bn.

Interxion shareholders will get 0.7067 Digital Realty shares for each stock they own. The purchase values Interxion shares at $93.48 a piece, considerably higher than yesterday's price of $88.67.

Bill Stein, Digital Realty CEO, said in a call with analysts that it needs a Gatling-gun approach to data centres, "covering the full product spectrum, from small footprint cage and cabinet environments, all the way up to multi-megawatt dedicated hyperscale facilities on a truly global basis".

He is expecting big things of the European operation: "The rapid expansion of cloud and content platforms is driving significant data center demand across Europe. However, within the platform segment, there are significant differences in terms of maturity of adoption across Europe. Even the most technology-centric European countries are 18 to 24 months behind the US, followed by a varying degree of maturity across the European continent."

The Dutch and American firms claim to have heavy capital-intensive investments lined up, with $400m to be ploughed into data centre construction.

Digital Realty has 18 data centres in the US and locations in Australia, China, Japan and Singapore. It also runs three centres in Brazil, and picked up parts of Telecity, which Equinix was forced to sell when the European Commission raised competition concerns.

Aside from the US data centre biz's massive DuPont Fabros deal, Equinix, Cyxtera, Peak 10 and Digital Bridge all bought other suppliers in billion-dollar-plus deals in 2017 and 2018. Combined with Equinix, Digital Realty accounted for more than 50 per cent of the M&A server farm deal value in 2017, according to data from Synergy Research Group.

Interxion is a big data centre player in Europe with over 50 data centres in 13 cities across the continent. Customers include 250 ISPs, all the top content delivery networks and more than 30 mobile network operators.

Digital Realty's Stein will remain at the helm of the combined company while Interxion's CEO, David Ruberg, will run ops in Europe, the Middle East and Africa, which will be branded as Interxion, a Digital Realty company. The new board of directors will have nine seats allocated by Digital Realty and one by Interxion. Digital Realty's chairman, Laurence Chapman, will chair the combined firm.

Ruberg said on the same conference call that he wanted to "assure our teams the process of transitioning from two separate entities into a combined global organisation will be fair, consistent, transparent, recognising the importance of preserving the rich culture and country diversity within the combined businesses".

There are typically winners and losers among the workforce during these tie-ups as the big bosses try to wring out cost savings from duplicated roles or functions. This case might be unique but that seems unlikely.

Digital Realty reported revenue of $806m for Q3 ended 30 September, up 1 per cent on a year earlier, and net profit of $67.5m from $61.3m. Interxion revenues for its Q2 ended 30 June grew 14 per cent to $158.5m, and profit went up to €8.6m from €600,000.

The deal is subject to the usual regulatory and shareholder approval. ®

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