In a relatively slow period for M&A activity, two companies on opposite coasts have made a splash this morning with news that they are going to join forces in an all-stock merger. Enter San Francisco-based Digital Realty (DLR 116.75) and Washington, DC-based DuPont Fabros (DFT 55.36), which are leading providers of data-center solutions.
The two companies will be tying up in an all-stock transaction valued at approximately $7.6 billion in enterprise value.
Under the terms of the agreement, DFT shareholders will receive a fixed exchange ratio of 0.545 DLR shares per DFT share, which translates into a premium of approximately 15% over Thursday's closing stock price.
The deal is expected to be completed in the second half of 2017, subject to shareholder approval and closing conditions. The companies anticipate being able to realize up to $18 million of annualized overhead savings. Additionally, this deal is expected to be immediately accretive to financial metrics when it is closed.
Those are just a few of the contributing factors driving the impending merger. Other key factors include: (1) an enhanced ability to serve top U.S. metro areas given DuPont Fabros's existing competitive footprint (2) expanding the hyper-scale product offering (3) solidifying a blue-chip customer base and reducing DuPont Fabros's customer concentration (4) taking advantage of a development pipeline to expand external growth potential and (5) using the combined companies' enhanced size and scale to provide the most comprehensive product offering in the data center sector.
The early response from investors to the merger news has been positive. DFT shares are trading nearly 16% higher in pre-market action while DLR shares are trading up close to 3.0%.
Both stocks have outperformed the market so far this year DFT is up 26.0% year-to-date while DLR is up 18.8% year-to-date.