Equinix makes £2.3bn cash-and-shares offer for UK rival Telecity

Equinix, the largest US data centre group by market value, has made a £2.31bn offer for its London rival Telecity, sparking a battle over Europe's burgeoning cloud computing market.

The move is seen as an attempt to spoil Telecity's planned merger with Dutch rival Interxion and prevent the two becoming a strong European competitor.

News of the bid may now flush out other offers for Telecity from rivals such as Japan's NTT Communications and Digital Realty of the US, said a person close to the process.

Data centre companies have been competing to tap into soaring demand for new services and storage, fuelled by the surge in mobile devices and cloud computing.

For the largest global companies, Telecity - which was founded by a British computing academic Mike Kelly and grew through acquisitions under its former chief executive Mike Tobin - represents one of the few remaining ways to increase market share in Europe.

Telecity on Thursday revealed Equinix's cash-and-stock approach, which values shares in the FTSE 250 company at £11.45 a share, a 27 per cent premium to its previous closing price.

Equinix's offer consists of £1.25bn in cash and the remainder in Equinix shares - and is the latest in a series of approaches that the US group has made in recent weeks, said one person close to the matter.

Telecity said on Thursday it had a fiduciary duty to consider the proposals, but added that "at this stage, there can be no certainty that any offer will ultimately be made for Telecity, or as to the terms on which any offer would be made".

Nevertheless, shares in the UK company closed up 21.73 per cent to £10.95 in London.

Mr Tobin left abruptly last year, and people familiar with the situation suggested he had a tense relationship with directors over future strategy.

He was known for an unconventional leadership style, and once published a management book entitled Forget Strategy. Senior executives described corporate events that involved being "kidnapped" by former KGB agents, swimming with sharks and spending a night in an ice hotel.

Mr Tobin now holds only a 0.3 per cent stake in the group, according to Bloomberg, with banks and asset managers comprising its main shareholders.

New York-listed Equinix confirmed its approach in a separate statement, saying a deal "would create a more compelling combination than the proposed merger with Interxion and would deliver greater value for Telecity shareholders".

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Equinix makes a significant proportion of its revenues from providing data storage for financial services companies including trading firms and exchanges.

It already holds a strong position in Europe, operating critical data centres in places such as Slough, the southwest London suburb. Adding Telecity to its portfolio would give it new centres in locations including London's Docklands financial district and Amsterdam.

However, Equinix's bid may face some antitrust questions, analysts warned.

In February, Telecity had announced plans to acquire Dutch group Interxion for £1.6bn, in a deal structured as a merger but giving Telecity shareholders 55 per cent of the combined company. Its offer valued Interxion shares at a 15 per cent premium and the combined group would have had a market value of more than £3bn.

Analysts at Jefferies warned that a tie up between Telecity and Interxion would leave "Equinix . . . confined to a distant number-two spot in Europe. The enlarged business would compete with Equinix not only within Europe, but also for US order flows and for acquisitions. Why would Equinix not choose to nip this rival M&A in the bud?"

At the time, Telecity also announced a £400m share buyback programme over three years. "If, heaven forbid, something were to preclude this merger, we are absolutely committed to this buyback," chairman John Hughes said.

Under UK takeover rules, Equinix has until June 4 to announce a firm intention to make an offer for Telecity.

Shares in Equinix have risen 38 per cent over the past 12 months to give the company a market value of $14.6bn. It recently changed its corporate structure to that of a real estate investment trust, or Reit, which gives it substantial tax advantages over many of its international rivals.

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