Telecom company to buy cloud services provider

Verizon Communications plans to buy cloud service provider Terremark Worldwide for about US$1.4 billion in a deal that could significantly expand its cloud offerings for enterprises.

The carrier expects to launch a tender offer between Feb. 10 and Feb. 17 for all shares of Terremark’s common stock. The boards of directors of both companies have approved the transaction, but it is subject to Terremark shareholders tendering a majority of the company’s stock, as well as regulatory approvals. Three stockholders have already agreed to tender a total of 27.6 percent of the stock, the companies said in a press release. Verizon expects to close the deal late in this quarter. Its offer of $19 per share represents a 35 per cent premium over Terremark’s closing share price on Thursday.

Analyst Steve Hilton from Analysis Mason, said communication service providers need help becoming broader technology providers and acquisitions like this deepen the expertise of Verizon by adding cloud services, hosting, colocation and data centre services from Terremark.

“According to the 2010 Analysys Mason forecast of cloud services, communication service providers provide only nine per cent of the worldwide cloud services revenue to enterprises today – approximately $1 billion. But by 2015, communication service providers like Verizon will provide 23 per cent of the worldwide cloud revenue to enterprises – approximately $8.2 billion. Acquisitions between partners in the industry are absolutely necessary to allow this sort of growth in the market share of communication service providers,” Hilton said.

Terremark offers collocation, managed infrastructure and cloud computing services from 13 data centers in the U.S., Europe and Latin America. It serves large enterprises and U.S. government agencies with on-demand computing resources. Verizon, with 220 data centers in 23 countries, offers some cloud-based services today through its Verizon Business division. The carrier said Thursday it is moving toward an “everything-as-a-service” delivery model.

Verizon Business provides fat network pipes around the world to many large enterprises and is beginning to leverage those connections to provide services. For example, last year Verizon announced plans for a computing-as-a-service product designed to let subscribers easily move workloads between their own infrastructures and Verizon’s. Earlier last year, the carrier launched a cloud-based storage service, relying at first on Nirvanix, an experienced vendor in the field.

If the Terremark acquisition is completed, Verizon will run the Miami-based business as a wholly owned subsidiary and maintain its name and current management team, the companies said.

In after-hours trading late Thursday, Terremark’s shares on the Nasdaq (TMRK) were up $5.00 at $19.07. Verizon’s stock (VZ) was down $0.02 to $36.47 on the New York Stock Exchange.

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Jim Love, Chief Content Officer, IT World Canada

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