Telecity and Interxion on the verge of data centre merger

This deal has been a year in the making and brings together two significant players in the data centre market.

The size of the combined company will be significant, taking the combined number of data centres over seventy. There is surprisingly little overlap between the two countries in terms of data centre, though both are strong in the UK.

Interxion shareholders will receive 2.3386 new Telecity shares for every Interxion share they own. Overall this means that the balance of the shares will be owned by Telecity shareholders (55 per cent). The new combined company will be listed on the London Stock Exchange although there is also likely to be a US listing for Telecity’s ADR programme, either on NYSE or NASDAQ,

TelecityGroup Executive Chairman John Hughes commented "Today is another important step in the transformational merger of TelecityGroup and Interxion to create a leading data centre services platform that will be well-positioned to address global markets.

"This merger is underpinned by significant value creation potential and I am pleased to confirm that we are delivering on our commitment to create value and returns for shareholders with the initiation of a share buy-back programme upon closing of the transaction of up to £800 million. I look forward to the completion of this merger and working with our colleagues at Interxion."

The merger process will take about a year for the dust to settle completely. David Ruberg has agreed to remain as CEO for up to twelve months to help complete the merger but will step down so that a replacement to head the combined group will take over, once they have been found.

John Hughes will remain Chairman and the combined group with John Baker the Deputy Chairman. Eric Hageman will be the Chief Financial Officer for the combined group with the board also consisting of three independent directors from the two companies.

In the first year the Telecity results are not expected to be affected, with the additional income from the merger looking to provide an additional 10 million this is likely to be swallowed up in the first year by one off consolidation costs as duplicated operations are removed leading to savings of £30 million each year thereafter.

In the first year the additional costs are likely to be £30 million and the savings will take three years to complete. Details of these cost savings were obviously not available but the delays are no doubt due to leases and the timing of some staffing cuts.

There will also be savings on synergies for Sales caex expenditures as the two companies will no longer be competing head to head against each other for deals and some of the larger projects can be cancelled as data centre space will be now be more available across the group. There are no details yet of any data centre announcements but no doubt some changes will follow once the agreement has been approved by the Interxion shareholders.

The combined group will also gain financial strength and with a targeted net debt/EBITDA ratio of up to 3.0 x should benefit from better access to capital for the group to see further expansion.

Interxion Chief Executive Officer David Ruberg said: "The combination of Interxion and TelecityGroup leverages the core strengths of both companies, providing the opportunity to drive growth and capture a greater share of the expanding global data centre market.

"Together, we will have the enhanced scale and scope to further develop communities of interest and provide our customers with greater product choice, solutions and connectivity as European cloud adoption develops.

"I look forward to working with the TelecityGroup team as we capitalise on the significant growth opportunities ahead and deliver additional value to our customers, partners and investors.”

This creates a powerhouse in the European market and one wonders whether the consolidation that started with the NTT acquisition of e-shelter will continue.