Q9 Networks Inc. (TSX:Q) announced todaythat it has entered into a definitive acquisition agreement with CDC Acquisition Corp., an affiliate of ABRY Partners, LLC to purchase all of the outstanding common shares of Q9.
Under the terms of the Agreement, Q9 shareholders will receive $17.05 per common share in cash, representing a premium of 38 per cent to the 30-trading day volume weighted average closing price on the Toronto Stock Exchange. The transaction, whichvalues Q9 at approximately $361 million, will be implemented by way of a court-approved plan of arrangement under the laws of Ontario.
“ABRY is one of the most experienced private equity firms in the media, communications, and information industry.” said Osama Arafat, CEO and Paul Sharpe, President and COO of Q9. “We believe they are the right partner to continue our aggressive growth plans while providing outstanding service toour valued customers. We are very proud of what the Q9 team has achieved to date and we look forward to leading them through our next phase of growth.”
“We are strong believers in the Canadian data centre infrastructuremarket and are excited to be participating in it through our acquisition of Q9.” said C.J. Brucato, Partner at ABRY Partners. “Q9, with its talentedmanagement team, has achieved a leading market position and a diversified blue chip customer base. We look forward to helping Q9 accelerate their growth and extend their leadership position.”
The completion of this transaction is subject to the approval of Q9’s shareholders at a special meeting which is expected to be held in October 2008. In addition, the arrangement will require approval by the OntarioSuperior Court of Justice. The transaction has been approved unanimously by the Board of Directors of Q9.
The transaction must be approved by the holders of common sharesrepresenting at least 66 2/3 per cent of votes represented at the meeting and by the holders of more than 50 per cent of the votes, other than votes in respect of sharesheld by certain members of senior management of Q9, represented at themeeting.
The Agreement contains a “go-shop” provision pursuant to which Q9 has the right to solicit and engage in discussions and negotiations with respect to potential competing proposals through the go-shop period, which ends on October 3, 2008.
After October 3, 2008, Q9 is subject to a “no-shop” restriction on its ability to solicit third party proposals, provide information and engage in discussions with third parties, other than parties with whom discussions commenced prior to the expiration of the go-shop (each, an “Excluded Party”). The no-shop provision is subject to a fiduciary out that allows Q9, subject tocertain conditions, to provide information and participate in discussions with respect to any unsolicited acquisition proposal received after October 3, 2008which the Q9 Board has determined in good faith constitutes or is reasonably likely to result in a superior acquisition proposal.
Q9 may terminate the Agreement under certain circumstances, including if the Q9 Board determines in good faith it has received a superior acquisition proposal. Q9 has agreed to provide ABRY with notice of any superioracquisition proposal and to negotiate with ABRY for a period of four business days prior to accepting a superior acquisition proposal. If Q9 terminates theAgreement in order to accept a superior acquisition proposal it must pay a fee of approximately $6.3 million to ABRY Partners if such termination occurs during the go-shop period or following the go-shop period where the superior proposal is from an Excluded Party, or approximately $10.8 million if suchtermination occurs following the go-shop period with anyone other than anExcluded Party.
Completion of the transaction is subject to various customary conditions precedent. The closing of the transaction will take place after satisfaction or waiver of all conditions. While the timing associated with satisfying theseconditions is not certain, Q9 currently expects the transaction to close in the fourth calendar quarter of 2008, subject to the terms of the Agreement.
This deal comes on the heels of Q9 Networks acquired a building and property in the Calgary to houseits third data centre in the city.
Q9 invested $20 million in the building and property and intends to invest up to $30 million more to build out an initial capacity of 1,200 cabinet equivalents. The first phase of capacity in this facility is expected to open in the summer of 2009.
The new facility has a potential total capacity of more than10,000 cabinet equivalents. Capacity will be brought on-stream in a phasedapproach as required.
The investment, Q9’s largest initial investment in a single facility to date, is in response to continued strong demand for high-availability data centre space and comes just over a year since Q9 opened its second Calgary data centre. Including today’s announcement, Q9 will have investedapproximately $85 million in the Calgary market.
The data centre’s infrastructure will be built to the same exactingstandards as all Q9 data centres and is expected to include such features as outside air cooling capability to maximize energy efficiency, biometricsecurity systems, multiple connections to the Internet, redundant power, HVAC and fire suppression systems, as well as 7×24 on-site security and technical support teams.
