CenturyLink Acquires Savvis for $2.5 billion

Telecom giant CenturyLink has decided to acquire Savvis for $2.5 billion in a move that signals early consolidation within the cloud computing industry. CenturyLink announced a deal whereby Savvis stock would be acquired for $40/share or 11% above the April 26, 2011 closing share price. CenturyLink’s acquisition of Savvis also involves the assumption of $700 million in debt, resulting in a total deal valuation of $3.2 billion. Under the terms of the transaction, Savvis shareholders would receive $30/share and $10 in shares of CenturyLink’s common stock. The acquisition enables CenturyLink to expand upon its existing hosting and colocation capabilities and include, alongside them, Savvis’s IaaS cloud computing platform. Together, CenturyLink and Savvis will operate a total of 48 data centers worldwide, composed of the union of Savvis’s 32 data centers and CenturyLink’s 16 data centers. CenturyLink announced plans to integrate Savvis as a distinct business unit that retains its current leadership team headed by Savvis chairman and CEO, James Ousley. The telecom company’s acquisition of Savvis comes upon the heels of its recent acquisition of Qwest for $10.6 billion in the increasingly consolidated telecommunications vertical. Savvis is known for its large enterprise customer base and annual revenues that are close to a $1 billion. In an interview with ZDNet’s Larry Dignan, Bill Fathers, President of Savvis, noted that cloud based revenues averaged $8 – $10 million a quarter, with 350 of its 3500 customers using its cloud based platform, Symphony. The remainder of Savvis’s revenues are generated by colocation, managed services such as application hosting and network services. Cloud revenues constitute a subset of Savvis’s managed services revenue. Rumours have swirled about the impending acquisition of Savvis since the recent acquisitions of Terremark by Verizon and NaviSite by TimeWarner. Leading industry analysts such as Gartner’s Lydia Leong contends that the acquisition could bode well for Savvis provided that the company is allowed to run semi-independently. Nevertheless, the larger question posed by this acquisition concerns whether acquired cloud vendors such as Terremark and Savvis can continue to deliver the level of product innovation of highly agile competitors such as Rackspace and Amazon.

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