Saturday, November 25, 2017

Digital Realty to buy DuPont Fabros in $7.6bn mega-merger

Transaction unanimously approved by the boards of directors of both operators, includes expansion plans for 163MW of extra data centre power.

Global data centre services provider Digital Realty has entered into a definitive agreement under which rival DuPont Fabros will merge with Digital Realty in an all-stock transaction.

The transaction, including debt, has been valued at $7.6bn, giving the great data centre REIT race top traction, breaking recent records within the colocation M&A space.

Expected to be closed in H2 2017, the closure of the M&A is subject to customary closing conditions.

Under the terms of the agreement, DuPont Fabros shareholders will receive a fixed exchange ratio of 0.545 Digital Realty shares per DuPont Fabros share.

The combination of the two companies is expected to create an opportunity to realize up to $18m of annualised overhead savings.

Both company stocks soared this Friday morning, with DuPont Fabros heading towards a record high in the company’s history.

Digital Realty said the acquisition will help the company in servicing the wider North American market where cloud services demand continue to grow.

According to Statista, in North America alone, cloud revenues are expected to top $59.45bn by 2020, from $34.16bn in 2016. This year revenues are expected to reach $$39.33bn.

Digital Realty has today 145 properties across 33 global metropolitan areas. The merger of DuPont Fabros into the company’s portfolio will help the provider augment its reach across Northern Virginia, Chicago, Silicon Valley and Canada.

In total, DuPont Fabros will add to the Digital Realty list of data centres, 12 purpose-built, in-service facilities. DuPont Fabros operates more than 3.2 million gross sqf and 278MW of critical load capacity.

On a combined basis, investment grade or equivalent customers will represent more than 50% of total revenue, the two companies said.

The combined company’s top three customers will account for approximately 18% of revenue compared to 57% for the top three customers of DuPont Fabros on a standalone basis.

William Stein, Digital Realty’s Chief Executive Officer, said: “This strategic and complementary transaction significantly enhances Digital Realty’s ability to support the growth of hyper-scale users in the top U.S. data centre metro areas, while providing meaningful customer and geographic diversification for DuPont Fabros.

“The combination is expected to generate both operating and financial benefits, and I’d like to congratulate Scott Peterson, Mark Walker and their team on successfully negotiating the largest transaction in our company’s history, a combination that we believe will enhance our ability to create significant long-term value for both sets of shareholders.”


Expansion to continue

DuPont Fabros has in recent months announced several expansions of its own fleet of data centres and currently has six development projects under construction.

These are 48% pre-leased and represent a total expected investment of approximately $750m, and amount to roughly a 26% expansion of its standalone critical load capacity.

The projects are located in Ashburn, Chicago, Santa Clara and Toronto, all metro areas where Digital Realty has an existing presence.

All developments are expected to be delivered over the next 12 months.  In addition, DuPont Fabros owns land holdings in Ashburn and Oregon, which will support the future delivery of up to 163 megawatts of incremental capacity, along with 56 acres of land recently acquired in Phoenix.

Christopher P. Eldredge, DuPont Fabros’ President & Chief Executive Officer, said: “We are excited to deliver this compelling transaction to our shareholders and execute upon two of the strategic objectives embodied in our corporate vision – diversifying our customer base and expanding our geographic presence.

“As part of Digital Realty, our shareholders will continue to realize the benefits of our high-quality portfolio, with the added benefits of belonging to an even greater data centre network with a truly global footprint and a well-diversified customer base.

“We also believe our shareholders will greatly benefit from Digital Realty’s investment grade balance sheet and more attractive cost of capital.  We look forward to working closely with the Digital Realty team over the coming months to close the transaction and bring our two companies together.”

For the transaction, Digital Realty has obtained a bridge loan facility from BofA Merrill Lynch and Citigroup which will be available, if needed, to finance the transaction.

BofA Merrill Lynch and Citigroup are acting as financial advisors and Latham & Watkins LLP is acting as legal advisor to Digital Realty.

Goldman Sachs & Co. LLC is acting as financial advisor and Hogan Lovells US LLP is acting as legal advisor to DuPont Fabros.