Equinix confirmed late last night that they are in discussions with Telecity management regarding a possible cash and shares offer for Telecity worth 1145p per share, a significant 27% premium to Telecity’s 900p closing price on the 6th May. The Equinix statement (http://bit.ly/1IiChTM) making clear they feel Telecity’s central London and Docklands sites will complement their Slough campus whilst Telecity’s wider European footprint will add locations such as Dublin, Milan, Stockholm and the more recent Eastern European sites acquired by Telecity to Equinix’s reach.
Interesting to see that so far today Telecity shares are trading at 1074p, a chunky discount to the proposed offer, illustrating that markets are clearly not yet 100% convinced a definitive offer from Equinix may arise or indeed perhaps reflecting concerns the proposed deal may hit competition concerns with the various regulators across Europe.
In the meantime Interxion released a statement this morning (http://bit.ly/1bzVDoM) confirming they are still committed to the merger with Telecity but that also of course they are now released from the exclusivity with Telecity. In other words, the company can now consider other options.
What next for Interxion?
A combined Telecity and Equinix in Europe would leave Interxion a distant second (but perhaps strategically important) carrier neutral pan-European colocation provider. A deal by Interxion with someone would seem inevitable. Perhaps a cash rich carrier like Vodafone might be an interested party? Or a possible merger with US based Telx? Perhaps a wholesale operator might consider a move, given the strong shift by wholesale operators towards the retail end of the market – Digital Realty an obvious contender but the REIT status may be a challenge, whilst other US wholesale providers not yet present in Europe may see a move for Interxion perhaps as a way to enter the European market.
Across the European colocation market our thoughts are as follows:
London – Interxion already a small operator compared to Telecity and Equinix, so are set to be left even further behind. Equinix’s key interest will be Telecity’s Docklands sites, especially Telecity Harbour Exchange (pictured) a carrier rich node.
Amsterdam – whilst Telecity have been a relatively late arrival in Amsterdam compared to Telecity or Interxion the combined Telecity/Equinix group would control a big chunk of this competitive market.
Paris – Quite a strong market for Interxion whereas Telecity are smaller. A combined Telecity/Equinix would simply make a stronger competitor v Interxion.
Frankfurt – Equinix already strong here, good finance market and recently acquired Ancotel/Kleyer90 campus.
For Equinix in Europe, the sites of most interest will be Telecity Dublin, a big market for US companies establishing a European footprint and Telecity’s Stockholm presence where they are the market leader. Longer term, the Eastern European locations recently acquired by Telecity such as Warsaw, Helsinki and Istanbul will extend Equinix’s global reach.
Thoughts for Telecity Customers
Telecity customers will probably be most nervous about cost implications, with many perhaps remembering the dramatic price increases that followed in 2006 after the Telecity/Redbus merger the year earlier. Certainly in our view Equinix charges have remained robust, especially in key ecosystems, but as also mentioned many times on Colo-X, the European retail colocation market remains very well supplied, ie competitive. This will hopefully mean that the doubling in charges that many former Redbus customers experienced in 2006 is highly unlikely this time around! In fact our recent market analysis (see below) demonstrates that its the key ecosystems such as in Telecity HEX where pricing power remains strongest with the premium operators, hence Equinix’s 2012 acqusition of ancotel Frankfurt and perhaps Telecity today. Equinix’s aggressive approach on cross-connect charges will also be a key area of customer concern.
If Equinix do decide to make an offer for Telecity then its highly unlikely Interxion will be able to respond given firepower at Equinix’s disposal. Customers will just have to wait and see how the picture evolves over the next month. In the meantime, with so many new competitors in the marketplace, the good news is that there is significant choice across all the European colocation markets today; as ever Colo-X remains will placed to discuss all options in a particular market.
Colo-X has also recently updated our review of the London Colocation Market. Please contact us for further details of this 50 page report which includes detailed analysis of all the key London operators, the supply/demand picture and pricing trends over the past few years. We also look more deeply into the key London colocation ecosystems; which sites do we view as strong ecosystems and what are the characteristics of a colocation ecosystem?