CenturyLink is moving closer to selling off its data center business, and it expects to complete a deal either at the end of the third or early in the fourth quarter, its CEO said.
Glen Post told investors during the second quarter earnings call that it is in final discussions with a number interested parties for the business.
“We have narrowed down the group of final contestants for the property and we have ongoing discussions, negotiations with that group,” Post said. “We feel good about where we are headed there and we think we'll be successful in getting the transaction done.”
A sale of its data center assets -- a concept it started to explore last year as a way to reduce operational costs -- would give CenturyLink more money to invest in areas like broadband and virtualization.
However, Post said that CenturyLink has not made a decision on how it would use any proceeds from the sale yet.
“We'll obviously consider a number of alternatives, stock buybacks, debt reduction, investment and strategic services, and other possible areas,” Post said. “We just haven't -- we're waiting until we get a little closer to the close to really decide how to best spend those funds. Our primary goal will be to utilize the cash in the very most effective way we can to drive long-term shareholder value.”
CenturyLink first broached the idea of selling off its data center assets last November during the telco’s third quarter 2015 earnings call. At that time it told investors that it was was looking at various opportunities for its data center and colocation business operations and considering a number of options for this segment. The provider could also keep some or all of these assets and operations as part of CenturyLink's portfolio.
Although a sale of the assets appears to be its ultimate goal, CenturyLink, which is a large managed services player, sees data centers as an important component.
Post said that if it can’t get the right price for the assets it will pursue partnership with other providers to lower its investment in these facilities.
“We think there are opportunities to approach it differently if we don't have a sale,” Post said. “We think there are partnership opportunities that would reduce the load as far as the capital requirements on CenturyLink. And we can enter into partnerships with other companies or find ways to share overheads with other companies. So we have a couple of partnership opportunities that could be beneficial for shareholders if we don't get the valuation from a sale that we expect that we require.”
CenturyLink’s pending data center sale comes at a transitional time for telcos that participate in the data center business. Fellow telco Verizon is also in the process evaluating its options, for example.
Fran Shammo, CFO of Verizon, told investors during its second quarter earnings call that it would make a decision in the third quarter about the data center business. In January, Shammo confirmed a Reuters report that the carrier was exploring a sale, which the report said would be for $2.5 billion. One of the sources cited said that Verizon's colocation assets include 48 data centers, which currently generate earnings of about $275 million.
- read the Seeking Alpha earnings transcript (sub. req.)