Equinix Joins Bidding for Telecity -- Update

(Rewrites, adds detail.)

By Simon Zekaria

LONDON--U.S data center operator Equinix Inc. (EQIX) Thursday joined the multi-billion dollar bidding war for Telecity Group PLC (TCY.LN) after making a cash and share offer for the U.K.-based peer, marking the industry's latest consolidation scramble in Europe to meet demand for digital services.

Equinix has offered 1,145 pence per share, with 54% of the offer payable in cash and approximately 46% in Equinix stock, Telecity said in a statement. "At this stage, there can be no certainty that any offer will ultimately be made for Telecity Group, or as to the terms on which any offer would be made," it added.

Redwood, Calif.-based Equinix, which has Google Inc. (GOOGL) and Microsoft Corp. (MSFT) as clients, said it has until June 4 to make a firm offer for Telecity.

In February, U.K.-based Telecity said it would merge with Netherlands-based Interxion Holding NV (INXN) to form an operator with a combined value of $4.5 billion. In an all-share agreement, Interxion shareholders would receive 2.3386 new Telecity shares for each Interxion share, representing a 15% premium to Interxion's closing share price of $26.47 on Feb. 9.

In a statement Thursday, Interxion said it remains committed to the merger with Telecity on the terms as agreed, and both parties continue to work to progress the transaction.

At 0819, Telecity shares jumped 20% to 1,077 pence, valuing the company at 1.83 billion pounds ($2.78 billion).

"We do not anticipate material regulatory obstacles to an Equinix [and] Telecity combination," said Citi analyst Simon Weeden. "We expect Telecity shareholders to be comfortable taking stock as part of a proposed consideration given the unique global positioning of the resulting company," added Mr. Weeden.

Telecity operates in major European cities such as London, Paris and Frankfurt. New York-listed Interxion has 39 data centers in 11 European countries. Equinix, which has more than 100 data centers world-wide, has a market value of over $14 billion.

Equinix said its deal with Telecity would create a "more compelling" combination than the proposed merger with Interxion.

The bidding battle comes amid rising demand for data centers--vast warehouses of computer and telecom equipment that power the Internet--as consumers use more data on their mobile phones and so-called cloud services--a catch all term for files accessed remotely over the Internet but hosted on outside computers.

As well as spending billions of dollars on their own data farms, companies are increasingly outsourcing data management and information technology handling to so-called co-location operators such as Telecity, Interxion and Equinix, where space is rented by rack, cage or room.

Global Internet traffic will triple over the next five years, according to networking-hardware specialist Cisco Systems Inc., with mobile data flow rising 11-fold between 2013 and 2018. Cloud-computing spending will nearly double to $285.7 billion in 2018 from 2014, research firm Gartner added

Separately Thursday, Telecity said fiscal first-quarter revenue fell 0.1% year-on-year. Excluding currency effects and one-off items, revenue rose 9.6%, which is ahead of company expectations, it said.

Write to Simon Zekaria at [e-mail]

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