CenturyLink Clouds Up With Savvis Buy

News Analysis Jeff Baumgartner, Senior Editor, Light Reading 4/27/2011

CenturyLink Inc. (NYSE: CTL) is the latest service provider to use M&A to shore up and accelerate its cloud networking strategy after putting up $2.5 billion for Savvis (Nasdaq: SVVS). But some analysts are already wondering if it will be enough to seal the deal.

CenturyLink said Wednesday it will acquire Savvis for $40 per share, or $2.5 billion, plus net debt of $700 million. Savvis shareholders are to receive $30 per share in cash and $10 per share of CenturyLink stock.

Although the deal represents an 11 percent premium over Savvis's closing price of $36.02 on April 26, there's speculation that CenturyLink may have to sweeten its offer.

"We would not be surprised if Savvis were to potentially receive a higher bid from another party, as traditional communication providers are looking for new avenues for revenue growth and are showing high interest in entering the managed hosting and cloud computing market," Mizuho Securities USA Inc. Analyst Michael Nelson said in a note issued this morning.

Of recent note, that kind of interest has led Time Warner Cable Inc. (NYSE: TWC) to buy NaviSite (Nasdaq: NAVI), and Verizon Communications Inc. (NYSE: VZ) to snap up Terremark.

Why this matters
Service providers and carriers are clearly racing to boost their cloud strategies and are looking to fill the gap with acquisitions rather than bridging it with something built from scratch. The deal should allow CenturyLink, which just wrapped up its Qwest Communications International Inc. (NYSE: Q) acquisition, to penetrate the cloud-computing and hosted-services market more deeply and rapidly than it could on its own.

As scale goes, a combined CenturyLink and Savvis will operate 48 data centers located in North America, Europe and Asia, a national 207,000 route-mile fiber network and a 190,000 mile global access network.

CenturyLink intends to integrate its hosting business with Savvis's and base the business unit in St. Louis, where it will be headed by Savvis CEO James Ousley.

For more
For more on the recent cloud computing M&A frenzy, check out:

— Jeff Baumgartner, Site Editor, Light Reading Cable