CenturyLink Inc. (CTL) continued its acquisition spree by agreeing to acquire Savvis Inc. (SVVS) for about $2.5 billion in cash and stock, as the telecom provider looks to expand its hosting and cloud capabilities for business customers.
The deal pushes CenturyLink further into cloud computing, a hot area in the tech sector that enables access to computer services and data storage over the Internet. The industry has been booming since the recession because it allows businesses to reduce data costs and move content more nimbly. Forrester Research Inc. (FORR) estimates the global market for cloud computing will grow from $40.7 billion in 2011 to more than $241 billion in 2020.
"Today, businesses are shifting the way they manage their information technology services and infrastructure, and this transaction helps us meet these needs by offering Savvis' leading products and services coupled with CenturyLink's network," CenturyLink Chief Executive Glen F. Post III said.
The offer values Savvis, an Internet infrastructure company, at $40 a share, an 11% premium to Tuesday's closing price. Under the terms of the deal, which also includes about $700 million in debt, Savvis holders will get $30 a share in cash and $10 in shares of CenturyLink stock.
Savvis shares rose 8.6% to $39.11. The stock, which last traded above the offer price in fall 2007, rose 41% this year through Tuesday's close as the company has widely been viewed as a takeover target. Meanwhile, CenturyLink shares fell 0.9% to $39.96. The stock is off 13% in 2011.
"We believe this is a very fair price for the company and investors," Savvis Chief Executive James Ousley said on a conference call with analysts. "We needed more scale and more financial resources. The CenturyLink combination definitely brings both of those to the party," he added.
Like many of its peers in the telecom sector, CenturyLink, which provides landline phone service to rural areas, has seen its subscribership decline amid a market increasingly saturated with cell phones. The industry has consolidated to help shield itself from that drop.
For CenturyLink, its acquisition spree continues. The company earlier this month closed the acquisition of Qwest Communications, forming the nation's third-largest landline communications company. The deal comes as Qwest integrates the $5.8 billion purchase of Embarq, the former landline business owned by Sprint Nextel Corp. (S).
One of the key reasons CenturyLink was interested in Qwest was its stronger business presence, which Qwest has built up over the past few years. The Savvis acquisition will help CenturyLink continue bolstering its position in the business market. More than half of the combined company's revenue is expected to come from business customers.
Managed services accounts for about a third of Savvis' revenue and is a growing segment, which CenturyLink found particularly appealing.
"Managed hosting is one of the most attractive growth areas in our sector," Post said. "We're seeing a lot of activity and requests from our customers for managed services."
The deal also is a coup for Savvis, a data center operator that provides web hosting, network and other so-called cloud-computing services. Takeover speculation swirled around Savvis for much of the year following other deals in the data-storage sector.
Savvis CEO Ousley in February acknowledged the company had generated more interest from bankers and inquiring parties following Verizon Communications Inc.'s (VZ) $1.4 billion deal earlier this year for Terremark Worldwide Inc. and Time Warner Cable Inc.'s (TWC) $230 million acquisition of NaviSite Inc. (NAVI).
"As migration to cloud-based services continues to accelerate rapidly, a strategic combination was a natural choice to create significant scale and become part of a large global network for the benefit of our customers, stockholders and employees," Ousley said on Wednesday.
CenturyLink and Savvis, which provides services to support ATM and Internet protocol, will together operate 48 data centers in North America, Europe, and Asia, a national 207,000 route mile fiber network and a 190,000 mile global access network.
Meanwhile, Savvis reported Wednesday a much narrower first-quarter loss as revenue climbed 19%.
CenturyLink reported in February that its fourth-quarter earnings fell 2.2% on lower revenue as the impact of access line losses more than offset gains at its high-speed Internet business.
The deal pushes CenturyLink further into cloud computing, a hot area in the tech sector that enables access to computer services and data storage over the Internet. The industry has been booming since the recession because it allows businesses to reduce data costs and move content more nimbly. Forrester Research Inc. (FORR) estimates the global market for cloud computing will grow from $40.7 billion in 2011 to more than $241 billion in 2020.
"Today, businesses are shifting the way they manage their information technology services and infrastructure, and this transaction helps us meet these needs by offering Savvis' leading products and services coupled with CenturyLink's network," CenturyLink Chief Executive Glen F. Post III said.
The offer values Savvis, an Internet infrastructure company, at $40 a share, an 11% premium to Tuesday's closing price. Under the terms of the deal, which also includes about $700 million in debt, Savvis holders will get $30 a share in cash and $10 in shares of CenturyLink stock.
Savvis shares rose 8.6% to $39.11. The stock, which last traded above the offer price in fall 2007, rose 41% this year through Tuesday's close as the company has widely been viewed as a takeover target. Meanwhile, CenturyLink shares fell 0.9% to $39.96. The stock is off 13% in 2011.
"We believe this is a very fair price for the company and investors," Savvis Chief Executive James Ousley said on a conference call with analysts. "We needed more scale and more financial resources. The CenturyLink combination definitely brings both of those to the party," he added.
Like many of its peers in the telecom sector, CenturyLink, which provides landline phone service to rural areas, has seen its subscribership decline amid a market increasingly saturated with cell phones. The industry has consolidated to help shield itself from that drop.
For CenturyLink, its acquisition spree continues. The company earlier this month closed the acquisition of Qwest Communications, forming the nation's third-largest landline communications company. The deal comes as Qwest integrates the $5.8 billion purchase of Embarq, the former landline business owned by Sprint Nextel Corp. (S).
One of the key reasons CenturyLink was interested in Qwest was its stronger business presence, which Qwest has built up over the past few years. The Savvis acquisition will help CenturyLink continue bolstering its position in the business market. More than half of the combined company's revenue is expected to come from business customers.
Managed services accounts for about a third of Savvis' revenue and is a growing segment, which CenturyLink found particularly appealing.
"Managed hosting is one of the most attractive growth areas in our sector," Post said. "We're seeing a lot of activity and requests from our customers for managed services."
The deal also is a coup for Savvis, a data center operator that provides web hosting, network and other so-called cloud-computing services. Takeover speculation swirled around Savvis for much of the year following other deals in the data-storage sector.
Savvis CEO Ousley in February acknowledged the company had generated more interest from bankers and inquiring parties following Verizon Communications Inc.'s (VZ) $1.4 billion deal earlier this year for Terremark Worldwide Inc. and Time Warner Cable Inc.'s (TWC) $230 million acquisition of NaviSite Inc. (NAVI).
"As migration to cloud-based services continues to accelerate rapidly, a strategic combination was a natural choice to create significant scale and become part of a large global network for the benefit of our customers, stockholders and employees," Ousley said on Wednesday.
CenturyLink and Savvis, which provides services to support ATM and Internet protocol, will together operate 48 data centers in North America, Europe, and Asia, a national 207,000 route mile fiber network and a 190,000 mile global access network.
CenturyLink reported in February that its fourth-quarter earnings fell 2.2% on lower revenue as the impact of access line losses more than offset gains at its high-speed Internet business.
