Verizon close to selling data centers to Equinix for $3.5B, report says

Verizon may be close to selling its data centers to Equinix, a data center specialist, for nearly $3.5 billion, marking the telco’s desire to sharpen its focus on its more profitable wireless and fiber-based business lines. That's according to a Cowen & Co. investor note.

"We believe a transaction involving Verizon's co-location assets is imminent and that Equinix is the most likely acquirer," said Cowen analyst Colby Synesael.

Verizon would not comment on any pending deal to Investors Business Daily.

The telco had high hopes to make a big splash in the data center market, one that it could couple with the then-nascent cloud services opportunity, by purchasing Terremark in 2011 for $1.4 billion.

Over the past year, Verizon has been selling off what it deems are non-core assets. The telco sold off its wireline properties in California, Florida and Texas – three markets it called "islands" – to Frontier Communications earlier this year, for example.

The Miami, Florida, and Culpeper, Virginia, data center assets, being major hubs, are seen as the most valuable ones that Equinix and others would like to have in their portfolio. Besides owning the Terremark data centers, Verizon has built its own data centers in various markets.

According to a Reuters report issued in January, Verizon's colocation assets include 48 data centers, which currently generate earnings of about $275 million. 

"Based on our channel checks, we believe the portfolio includes 14 facilities which primarily include those Verizon inherited when it bought Terremark in 2011," Synesael wrote. "We estimate EQIX could pay 13 to 13.5 times EBITDA, or $3.5 billion, and believe such a transaction would be viewed as positive for Equinix and neutral to Verizon."

Fran Shammo, Verizon’s outgoing CFO, told investors during the telco's second quarter earnings call that it would make a decision in the third quarter about the future of the data center business.

Verizon is not the only telco that’s in the midst of selling off its data center assets.

CenturyLink, for one, told investors during its second quarter earnings call that it has whittled down to a small group of suitors with plans to complete its strategic review of the assets by the end of the year.

“We are exploring a full range of options including, but not limited to, a partnership or joint venture, a sale of all or a portion of the data centers, as well as keeping these assets as part of CenturyLink’s portfolio,” CenturyLink previously said in a statement.

In September, a Reuters report suggested that GTCR, Charlesbank Capital Partners, Berkshire Partners and Stonepeak Infrastructure Partners are developing a joint bid for the data center facilities.

Besides the private equity firms, the sources said that CenturyLink has been also been discussing a possible sale with other interested parties, including data center providers and BC Partners. However, no deal has been reached yet, and it’s unclear if the telco will accept the VC consortium's offer.

For more:
- Investors Business Daily has this article

Related articles:
Verizon's Shammo: We'll make a decision on our data center business in Q3
CenturyLink’s Post: We’ll finalize a data center sale by end of Q3 or Q4
CenturyLink says multiple parties are interested in its data center business