US data center business Equinix has confirmed it is in talks about a possible £2.3 billion (US$3.55 billion) takeover of Telecity, a smaller player based in the UK.
A tie-up between the two companies would give rise to the biggest data center company in Europe, according to analysts cited in a Reuters report, but could also scupper TeleCity plc (London: TCY)'s move for Interxion -- another data center business based in the Netherlands -- announced three months ago.
Indeed, in a statement Equinix Inc. (Nasdaq: EQIX) said a takeover of Telecity "would create a more compelling combination than the proposed merger with Interxion Holding and would deliver greater value for TelecityGroup shareholders."
The move would allow Equinix to extend its footprint in Europe and add capacity at several locations where it already has facilities, said the company.
Telecity's share price soared 20% on the London Stock Exchange Thursday after the UK business revealed it was in negotiations with Equinix, while Interxion's stock fell by 4.3% on the New York Stock Exchange.
According to Telecity, Equinix would pay 54% of the fee in cash and the remaining 46% in Equinix stock, offering £11.45 (£17.68) per Telecity share -- a 27.3% premium to Telecity's closing share price on May 6 and about 5% higher than its price on the London Stock Exchange Friday afternoon.
Equinix said it had until June 4 to announce a firm intention to make an offer for Telecity.
Telecity's February bid for Interxion valued that business at approximately $2.2 billion and would see Telecity offer 2.3386 new shares for each share in the Dutch company.
Interxion has defended its agreement with Telecity as one that would create a "strategically compelling combination" but noted that "TelecityGroup's entrance into discussions with Equinix releases Interxion from its exclusivity obligations with TelecityGroup during the pendency of the discussions."
Equinix's move came in the same week that Telecity reported underlying revenue growth of 9.6% for the first three months of 2015 (on a year-on-year basis) and confirmed it was on track to grow revenues by 8-10% this year.
Telecity reported revenues of £348.7 million ($538.5 million) in 2014 -- 7.1% more than in 2013 -- and saw adjusted profit after tax rise by 7.3%, to £79.7 million ($123.1 million).
Equinix, meanwhile, generated $643.2 million in revenues in the January-to-March quarter, representing growth of 1% compared with the same period of 2014, while income from operations rose by 18%, to $151.4 million, over the same period.
— Iain Morris, , News Editor, Light Reading