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Edition: U.S. Article Comments (0) Follow Reuters Facebook Twitter RSS YouTube Read We should have been safe with Sony, say gamers 8:27am EDT Royal wedding snapshots: Naked Kate, but no glitter balls 11:42am EDT UPDATE 1-Q+A-What's going on at Japan's damaged nuclear power plant? 8:30am EDT Lindsay Lohan makes clean breast of things for Leno | 5:58am EDT Indian guru Sai Baba buried in state funeral, thousands grieve 2:54am EDT Discussed 147 Texas governor calls for prayers for rain 138 Obama sees no magic bullet to push down gas prices 66 U.S. sends drones to Libya as battle rages for Misrata Watched Lohan on Leno, Cole on "X Factor" Tue, Apr 26 2011 Tornado caught on security camera video Tue, Apr 26 2011 Thousands at Sai Baba funeral 6:36am EDT CenturyLink gets cloud boost with $2.5 billion Savvis buy Tweet Share this By Saqib Iqbal Ahmed and Sinead Carew BANGALORE/NEW YORK (Reuters) - Phone company CenturyLink Inc (CTL.N) plans to buy Savvis Inc (SVVS.O) for about $2.5 billion in cash and stock to beef up its data center business as it looks to cash in on... Email Print Factbox Recent deals involving cloud-computing companies 8:51am EDT Analysis & Opinion New NYSE synergies deliver both good and bad news Tech wrap: Apple beats Google to the music cloud Related Topics Technology » Deals » Global Deals Data 2011 Q1 » Inflows Outflows » Stocks By Saqib Iqbal Ahmed and Sinead Carew BANGALORE/NEW YORK | Wed Apr 27, 2011 10:36am EDT BANGALORE/NEW YORK (Reuters) - Phone company CenturyLink Inc (CTL.N) plans to buy Savvis Inc (SVVS.O) for about $2.5 billion in cash and stock to beef up its data center business as it looks to cash in on increasing demand for so-called cloud services. The deal comes at a time when regional phone companies like CenturyLink, which acquired rival Qwest for $10.6 billion earlier this month, are looking at ways to boost their business as consumers continue to disconnect home phones in favor of Internet services and cellphones. The Savvis buy, announced on Wednesday, will help CenturyLink boost its data centers, which are large warehouses filled with computer storage servers. They are key to cloud services, which help companies cut costs by hosting software and computers at large-scale remote data centers which consumers can access via the Internet. Data center operators have seen a spurt of recent deals in the recent past, including Verizon Communications' (VZ.N) $1.4 billion purchase of Terremark Worldwide. While analysts said the deal made strategic sense for both companies, some complained that Savvis had fetched a lower valuation than they would have hoped. The deal valued Savvis at roughly 10 times expected 2011 earnings before interest, tax, depreciation and amortization, according to D.A. Davidson analyst Donna Jaegers. She said she had expected a multiple of 12 and that Terremark had fetched a multiple of 14. "I'm sure there will be shareholder suits," Jaegers said. The deal calls for Monroe, Louisiana-based CenturyLink to pay Savvis stockholders $30 per share in cash and $10 in stock, representing an 11 percent premium on Tuesday's close on Nasdaq. Shares of Savvis were up 8.7 percent at $39.15 in morning trading, while CenturyLink fell 0.6 percent to $40.08 on the New York Stock Exchange. CenturyLink will also take on Savvis debt of about $700 million. "The deal is sensible and a good one, but seems to undervalue Savvis somewhat." said Benchmark Co analyst Clayton Moran, who sees $45 per share as a fairer price. LOW VALUATION/GOOD STRATEGY Savvis Chief Executive Officer James Ousley told analysts on a conference call that the company would not close the doors to any other bids, but that CenturyLink had offered the best deal. Under the agreement, Savvis would pay an $85 million break-up fee if it decides to bow out, according to one source familiar with the situation. The deal came together in the last two or three months, the source said. Jaegers said the deal would probably succeed as shareholders owning 23 percent of Savvis had agreed to sell their stock to CenturyLink. The deal would allow CenturyLink to generate more revenue than it would otherwise have gotten from the Qwest data centers by adding Savvis managed hosting services there, she said. "That's the part of Savvis expertise CenturyLink could take advantage of," said Jaegers. "We think this is a great deal for CenturyLink." The acquisition would also provide CenturyLink a much wider scale, providing it with 48 data centers in Europe and Asia as well as North America. CenturyLink said it would merge its hosting operations with Savvis' managed hosting and cloud businesses, with Savvis CEO Ousley heading them. CenturyLink said it expected to save about $70 million in annual operating costs and capital expenditures. Jaegers suggested this number was conservative given the potential the deal creates for boosting Qwest data center revenue. CenturyLink, which expects the deal to add to its free cash flow per share, also said it would help improve revenue, EBITDA and free cash flow growth. Barclays Capital (BARC.L) and Bank of America Merrill Lynch (BAC.N) were financial advisers for CenturyLink, and Wachtell, Lipton, Rosen & Katz and Jones, Walker, Waechter, Poitevent, Carrere & Denegre were the legal advisers. (Reporting by Saqib Iqbal Ahmed in Bangalore, Sinead Carew and Nadia Damouni in New York; Editing by Sriraj Kalluvila, Saumyadeb Chakrabarty and Lisa Von Ahn) Technology Deals Global Deals Data 2011 Q1 Inflows Outflows Tweet this Share this Link this Digg this Email Reprints We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language, all capital letters or appear to be spam, and we review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. Comments (0) Be the first to comment on reuters.com. Add yours using the box above. 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