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Summary:

Verizon has agreed to buy Terremark, a provider of managed and cloud services for $1.4 billion. The deal is an aggressive move to gain customers in the red-hot cloud computing market, and makes sense, as the network and the computer are moving ever closer.

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Verizon has agreed to buy Terremark, a provider of managed and cloud services, for $1.4 billion, the communications company said on Thursday. Verizon, which already offers its own Infrastructure-as-a-Service product, as well as managed hosting for enterprise customers, will pay $19 per share for Terremark. For Verizon, the deal is an aggressive move to gain customers and clout in the red-hot cloud computing market, and makes sense in a world where the network element and the computing element are moving ever closer.

Om calls it comm-puting and vendors such as Cisco and Hewlett-Packard are already providing the boxes that illustrate this philosophy at work, but Verizon is taking its commitment a step further, essentially doubling down the the cloud. Many service providers are trying to take advantage of the shift to the cloud by emphasizing their ability to control not only the computing infrastructure, but also the pipes between the customer and the cloud.

AT&T, Qwest and Verizon all have cloud businesses, and Verizon even offers customers guarantees about how fast data will travel between one cloud and the other. Plus, if Verizon wanted to make a bold move as competition in the enterprise heats up (earlier this week HP announced that it would offer an IaaS product) now was the time to do it, before Terremark became too expensive.

Terremark, which competes with providers such as Savvis or Rackspace to offer managed services and IaaS, has seen its shares rise by 71 percent from this time last year. However, Terremark’s shares,which closed today at $14.05, are still about half the price of Savvis’. Additionally, Verizon and Terremark are both big VMware customers, offering public clouds based on VMware’s vCloud tools. Verizon plans to operate the new unit as a wholly-owned subsidiary, retaining the Terremark name and with Terremark’s current management team continuing to manage the company. A Terremark spokeswoman says  the Terremark executive team, including CEO Manny Medina, will stay in place, and the current business model will stay the same.

Verizon plans to commence a tender offer between Feb. 10 and Feb. 17, 2011, for all shares of Terremark common stock. The tender offer price constitutes a premium of 35 percent per share over today’s closing price. Verizon has already entered into agreements with three stockholders of Terremark to tender their shares into the offer, representing approximately 27.6 percent of the outstanding voting shares of Terremark. Verizon expects to close the tender offer late in the first quarter of 2011.

Image courtesy of Flickr user Torkildr.

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  1. don’t forget that with this acquisition VZ is also buying into Latin America where there is tremendous growth for telecom services and infrastructure

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  2. “However, Terremark’s shares,which closed today at $14.05, are still about half the price of Savvis’.”

    That’s not a meaningful comparison–compare market capitalization (share price times number of shares). Terremark is about $1.3B; Savvis about $1.7B.

    A good recent review:

    http://seekingalpha.com/article/245516-terremark-growing-to-nowhere

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  3. Lets see how long the terremark team lasts at VZ. No more than 18 months, imo.

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  4. [...] Ousley, CEO and Chairman of Savvis is having a great day. Yesterday Verizon Communications agreed to buy rival data center and managed hosting company Terremark for $1.4 billion, and today he has joined a small group of companies that are suddenly sought after [...]

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  5. [...] announcing plans to buy Terremark for $1.4 billion is a big deal in the cloud computing world, but I don’t think Terremark will be the biggest [...]

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  6. [...] a nationwide network and it only makes sense for utility customers to leverage that infrastructure. Verizon also just bought Terremark, a provider of managed and cloud services, for $1.4 [...]

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  7. [...] Rumors of the company’s sale began in January after Verizon Communications announced its $1.4 billion takeover of Terremark Worldwide. Time Warner, five days later, then followed up with a $230 million deal for [...]

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  8. [...] as large a player as Verizon with it’s Compute as a Service products. And in January, Verizon said it would purchase Terremark, a provider of private clouds and data centers in a deal valued at $1.4 billion, saying that cloud [...]

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  9. [...] center provider with operations around the United States. The $3.2 billion acquisition mirrors the $1.4 billion buy of Terremark that Verizon completed earlier this month as telecommunications providers buy their way into providing cloud [...]

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