Verizon is taking aim at the cloud with a $1.4 billion acquisition bid for services vendor Terremark.
Verizon (NYSE: NASDAQ:VZ) is offering $19 per Terremark (NASDAQ:TMRK) share, a 35 percent premium over the closing price on Jan. 27. Verizon expects the deal to close by the end of the first quarter.
Verizon plans to operate the new unit as a wholly owned subsidiary, retaining the Terremark name and keeping its current management team in place. Terremark operates 13 data centers in the United States Europe and Latin America that deliver cloud and managed services.
"This transaction will accelerate Verizon's everything-as-a-service cloud strategy by delivering a powerful portfolio of highly secure, scalable, on-demand solutions to business and government customers across the globe," Lowell McAdam, president and COO of Verizon said during a conference call discussing the deal.
McAdam noted that a purely organic build-out of cloud services would not be enough for Verizon to get into the cloud market as fast as it would like. He explained that the acquisition of Terremark was a classic buy-versus-build decision.
"By the time you build data centers, outfit them, build the employee capabilities, put in all of the software applications -- it takes time, and to be honest, that's not our core competency," McAdam said.
He added that while there are a number of players in the cloud-services space that represent potential acquisition targets, in Verizon's view, none is as good a fit as Terremark in terms of business mix, data center capacity and management leadership.
McAdam noted that Terremark's client base is also complementary, with a focus on government customers as well as enterprises. He added that by layering Terremark's capabilities on top of Verizon's, they will create a business that is well positioned for cloud services.
"Our strategic vision in this area has always been to provide a complete stack of next-generation services with security throughout all the layers," McAdam said. "By acquiring Terremark, we accelerate our capabilities to do just that."
He noted that the Terremark team is always on the hunt for enhanced security, more applications and more efficient ways to run the data centers.
"We're going to encourage that and we're going to fund it so that they can evolve and add dimensions to this product set," McAdam said. "We're excited about the future, not just what is today."
From Terremark's perspective, the Verizon acquisition will have a positive impact and won't change the priorities of its business.
"Our business model is not changing," Terremark Chairman and CEO Manuel D. Medina said. "We're just using Verizon's muscle to propel our growth to an unprecedented level."