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With Dupont Fabros Buy, Digital Realty Expands Data Center Reach

With Dupont Fabros Buy, Digital Realty Expands Data Center Reach
In what is considered to be its biggest-ever deal, to help expand in high-demand markets in the United States amid a rapid shift to the cloud by technology companies, Digital Realty Trust Inc said it would buy fellow data center operator DuPont Fabros Technology Inc for an enterprise value of about $7.6 billion.
Just below the offer price of $63.60 based on Thursday's close, DuPont Fabros's shares rose as much as 14.6 percent to hit a record high of $63.46.
Including Silicon Valley and Northern Virginia, while Digital Realty operates 145 data centers globally, Washington-based DuPont Fabros operates 12 data centers in three major U.S. markets.
the surge in demand for data and video has also benefited Digital Realty and DuPont Fabros, which rent out space that companies use for data centers.
Digital Realty Chief Executive William Stein said on a conference call on Friday that the combined company would be the "home to the cloud."
The deal is expected to close in the second half and companies such as Facebook Inc and Yahoo Inc would be added to Digital Realty's customer base by the deal.
The companies have said that a fixed exchange ratio of 0.545 Digital Realty shares per share held would be received by shareholders of DuPont Fabros.
A premium of 14.9 percent to DuPont Fabros's close, the offer is worth $63.60 per share based on Digital Realty's Thursday close. According to a Digital Realty presentation, the implied price per share is $64.32.
According to Thomson Reuters data, based on DuPont Fabros's 77.8 million shares outstanding as of April 2, the equity value of the deal is about $4.95 billion.
"The addition of (DuPont Fabros) should enhance (Digital Realty's) growth prospects, as it's acquiring an asset that's growing at plus 10 percent per year, with recent momentum including a 28.8 MW lease signed by who we believe to be (Apple)," Wells Fargo analyst Jennifer Fritzsche wrote in a client note.
The companies said that up to $18 million of annualized overhead savings could be potentially realized by the deal.
With the intention to boost growth, companies have been acquired by San Francisco, California-based Digital Realty.
It would buy eight data centers from Equinix Inc and in October 2015 bought Telx Group Inc., the company said in May last year.
From BofA Merrill Lynch and Citigroup to finance the DuPont Fabros deal, it had a fully committed bridge loan facility, Digital Realty said.
While Goldman Sachs is advising DuPont Fabros, BofA Merrill Lynch and Citigroup are Digital Realty's financial advisers.
While Digital Realty's stock was little changed at $116.77, DuPont Fabros's shares were up 12 percent in morning trading.

Christopher J. Mitchell

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