Telecity receives £2.3bn offer from Nasdaq's Equinix, first-quarter sales disappoint

Datacentres group Telecity, which in February agreed a £1.44bn non-binding bid for Dutch firm Interxion, has received a takeover offer from Nasdaq-listed rival Equinix at 1,145p per share in cash and equity, as it also reported slower sales in the first quarter.

This bid, at a 27% premium to the closing price on Wednesday, values the FTSE 250 group at £2.32bn and represents roughly 30 times full year earnings.

Private equity has long been reported to be interested in Telecity, noted broker Investec, "but at sub-1000p levels"

Telecity said Equinix offer is made up of 54% cash and approximately 46% in Equinix stock.

The UK company said that, having carefully considered the proposal in the light of its agreement with Interxion, it has determined that "it is required by virtue of its fiduciary duties to enter into discussions with Equinix and has decided to permit Equinix to undertake a short period of due diligence".

"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," Telecity said.

Equinix said it has until June 4 to make a firm offer but analysts were confident the bid was unlikely to be challenged but could face competition hurdles.

Investec said the bid looked "fully priced" and it saw "only an outside chance" of a counterbid from another player or from private equity but that "anti-trust concerns are an unknown, considering the strength of a combined Equinix-Telecity player in Europe".

"The prospect of applying the Equinix cross-connect pricing model to the Telecity estate could exacerbate this."

But from investors' perspective, with Telecity shares scraping as low as 630p last year "due to existential concerns over pricing and supply in the air, and with these questions unresolved", analysts suspected shareholders will be happy enough to take the money.

Meanwhile, first-quarter results from Telecity showed organic currency-neutral growth was, at 6.5%, much slower than management's full year guidance of 8-10% and the 9% in the second half of last year.

On the upside, customer churn was down materially year-on-year, led by the UK, and there has been a "good" level of gross order wins across the group.

Executive chairman John Hughes said he was very pleased with the progress the group has made and the results.

"Whilst our first quarter reported results have been impacted by the strengthening of sterling year-on-year, our underlying performance has been very encouraging. The good Q1 2015 order win performance along with significantly reduced levels of churn, particularly in the UK, means the board is positive about the trajectory of the group for the remainder of the year."

The slowdown was partly attributed to a lack of space in key jurisdictions and the second quarter is expected to be similar to the first, with an upturn in the second half upturn linked to the planned opening of more space in Amsterdam, Dublin and Manchester as well as a reduction in UK churn, according to broker Numis.