CenturyLink's (NYSE: CTL) move to acquire managed service and colocation provider Savvis (Nasdaq: SVVS) for $2.5 billion illustrates how the once-small town telephone company wants a piece of the global cloud services segment.
The deal to acquire Savvis comes not long after CenturyLink purchased Qwest earlier this month.
Under the terms of the cash and stock agreement, CenturyLink will acquire all outstanding shares of Savvis common stock that are valued at $40 per share, while assuming about $0.7 billion in net debt.
Clearly, CenturyLink's acquisition of Savvis is all about enhancing its business capabilities, including greater colocation and managed services capabilities with immediate global reach--two things the telco lacked prior to this acquisition and its Qwest deal.
"The transaction creates a premier managed hosting and colocation provider with global scale in a high growth sector, and is expected to be accretive to revenue growth and cash flow per share," said Glen F. Post, III, CenturyLink chief executive officer and president in a release announcing the deal. "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."
When the deal is complete, CenturyLink and Savvis will operate 48 data centers in North America and Europe, a 207,000 route mile fiber network, a 190,000 mile global access network, and a Fortune 500 and Fortune 1000 company customer list.
Seeing hosting and colocation as a strategic business element, CenturyLink said they plan to integrate its hosting business and Savvis' managed hosting and cloud services into one common business unit. Set to be based in St. Louis, the unit will continue to be led by Savvis' current management team, including current CEO James Ousley.
Still, some analysts think that the CenturyLink/Savvis marriage is far from a done deal. Given the recent M&A activity by both Verizon even smaller telcos like TDS Telecom to purchase Terremark and Team Companies, it's possible that another service provider could make a higher bid on Savvis.
"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," Michael Nelson, an analyst for Mizuho Securities USA Inc. wrote in a research note on the deal.
For more:
- see the release
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