The threat of increased competition has been known to spur merger activity. US-listed data centre giant Equinix has mounted an offer of 1,145p a share for Telecity (TCN), in a bid to disrupt the data centre provider's agreed merger with Dutch peer Interxion.
Equinix's informal offer - comprising £1.25bn in cash and the balance in shares - values Telecity at £2.31bn. It represents a 27 per cent premium to the closing price of Telecity's shares just prior to the news. Investors welcomed its proposal by sending Telecity's shares up 22 per cent to 1,095p.
Telecity had previously agreed to merge with Dutch peer Interxion in an all-share deal worth $2.2bn (£1.44bn) which would see it own around 55 per cent of the combined group. Management expected that deal to generate about £600m in total synergies, including a £40m boost to annual cash profits from cost savings and new growth opportunities. The threat of the combined group, valued at over £3bn, is likely the main reason for Equinix's bid.
The abrupt departure of chief executive Mike Tobin in 2014 hasn't derailed Telecity; it continues to tap into soaring demand for cloud computing, data storage and mobile bandwidth. In the first quarter of 2015, strong trading in Europe drove underlying group revenues up a tenth. That's in line with the full-year target of organic, constant-currency revenue growth of between 8 and 10 per cent. Telecity also increased the percentage of power sold by 1.9 percentage points to 75.2 per cent in just three months. But investments in staff, systems and processes meant adjusted cash-profit margins dipped slightly to 46.6 per cent.
