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Verizon Close To Selling Cloud Data Centers, Analyst Says

Oct 06, 2016

Verizon is getting close to selling off its cloud data center unit after almost a year of testing the market for a possible divestiture, according to one Wall Street analyst. California-based data center operator Equinix is probably the buyer.

"We believe a transaction involving Verizon's co-location assets is imminent and that Equinix is the most likely acquirer," Cowen & Co analyst Colby Synesael wrote in a report on Wednesday.

Verizon declined to comment. CFO Fran Shammo said last month that the company would have an update on the sale process when it reports third quarter earnings.

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For several years, the carrier has been shedding businesses that don't fit into its strategic plans in order to raise money to pay down some of the debt it took on when it bought out its wireless partner Vodafone in 2014. Under CEO Lowell McAdam, Verizon has been seeking growth in wireless, smart devices in the Internet of Things, and online video and advertising.

The deal would center around its 14 data centers, most of which Verizon (vz) acquired in its 2011 purchase of Terremark Worldwide for $1.4 billion. Verizon failed to reach the scale necessary to compete with the largest cloud service providers like Amazon (amzn) and Microsoft (msft).

Equinix, which runs data centers in 40 markets worldwide, would likely pay about $3.5 billion for the data centers, Synesael said.

The business has been suffering under Verizon's management but could improve under Equinix (eqix), according to Synesael. Revenue at the unit has been declining "based on what we believe has been a lack of focus by Verizon which is why Verizon has elected to sell them to begin with," he wrote. "In the hands of Equinix we believe it is highly likely the company can right the ship although this could take upwards of 1-2 years post close."

Verizon disclosed last year that it was considering exiting the cloud hosting business. The deal would follow the sale of its consumer telephone, Internet and cable TV service in three states to Frontier Communications for $11 billion last year.

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