Digital Realty has reached a deal to acquire DuPont Fabros for $7.6 billion, expanding its presence in high-profile U.S. markets to accommodate businesses’ shift to cloud-based services.
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.
Digital Realty obtained a fully committed bridge loan facility from Bank of America Merrill Lynch and Citigroup which will be available, if needed, to finance the transaction. The debt assumed in the acquisition is expected to be permanently refinanced with a combination of investment-grade corporate bonds and other financing.
Digital Realty and DuPont Fabros’ boards unanimously approved the merger. After clearing DuPont Fabros and Digital Realty shareholder approvals and other customary closing conditions, the transaction is expected to close in the second half of 2017.
Clearly, this acquisition is about scale.
Washington-based DuPont Fabros operates 12 data centers in three key markets, including Silicon Valley and Northern Virginia, while Digital Realty operates 145 global data centers.
"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 center metro areas, while providing meaningful customer and geographic diversification for DuPont Fabros ," said William Stein, CEO of Digital Realty, in a release. "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."
Paul Young, head of the risk arbitrage desk for Wells Fargo, agreed and said in a research note that the wider set of assets enables Digital Realty to enhance its market reach.
“The transaction will help grow DLR's presence in strategic, high-demand metro areas with strong growth prospects, while achieving significant diversification benefits for DFT shareholders from the combination with DLR's existing footprint of 145 properties across 33 global metropolitan areas,” Young said.
The combination of the two companies is expected to create an opportunity to realize up to $18 million of annualized overhead savings, resulting from both companies' complementary business operations. Upon closing, Digital Realty said the acquisition expected to be immediately accretive to financial metrics, and is expected to further improve balance sheet strength.
Digital Realty has never been shy about scaling its business via acquisitions. In 2016, Digital Realty bought eight European data centers from Equinix for $874 million, a deal driven by a European Commission requirement in order to gain approval of its Telecity Group acquisition.