Verizon Buys Terremark for $1.4B in Amazon Cloud Play

Verizon is acquiring cloud-service provider Terremark Worldwide to compete against Amazon's cloud by offering customers security, IAAS and managed services.

Verizon Communications is acquiring Terremark Worldwide for $1.4 billion to enhance its cloud-computing capabilities, the companies said Jan. 27.

The acquisition of the Miami-based cloud services and data-center-hosting provider will expand Verizon's ability to provide IT services to corporate customers. Terremark currently has 13 data centers scattered throughout the United States, Europe and Latin America, and offers IAAS (Infrastructure as a Service), security and managed services. Verizon will be competing with major cloud-services players such as Amazon.

The deal would "accelerate Verizon's "everything-as-a-service" cloud strategy," Lowell McAdam, Verizon's president and COO, said on a call with investors on Jan. 28. Verizon currently operates more than 220 data centers across 23 countries.

"We have viewed this space for a long time as a place we want to grow our business," McAdam said.

Verizon will be tendering an offer for all shares of Terremark at $19 a share between Feb. 10 and Feb. 17, Fran Shammo, Verizon's CFO, said on the call. The price is a 35 percent premium over Terremark's closing price of $14.05 just before the acquisition was announced. The all-cash deal will increase Verizon's net debt by $2 billion, Shammo said. The two-step merger is expected to close within 90 days, he said.

Terremark has extensive relationships with large enterprises and in the government sector, and combined with Verizon's sales force and distribution network, will be able to "move very quickly" so that Terremark can "open up new markets" in the Asia-Pacific region and Latin America, McAdam said.

The "real growth opportunity" was on the managed-services side, with Terremark's security and managed-services offerings, especially within the government sector, McAdam said.

"This is a classic make-or-buy decision. By the time you build data centers and then outfit them ... it takes time. And to be honest, that's not our core competency," said McAdam.

Terremark will operate as a wholly owned subsidiary and would retain its name. The company's senior executives will remain, and Manuel D. Medina, currently Terremark's CEO, will report directly to McAdam.

"We're not going to try to cramp their style at all. They can support anyone they want to work with," McAdam said.

Terremark has an extensive carrier-neutral collocation business, which will remain in place, just as Verizon will maintain its own collocation services, the executives said. "At the end of the day, it's the same business, but now with a big brother," Medina said during the call.

Verizon was a Terremark customer, the executives said. McAdam said it was likely Verizon will be moving some applications and data centers to Terremark but provided no details.

The companies will also be looking at their combined real estate and figure out "where we have space and land," McAdam said. Terremark has already broken ground on a new data center, and there is room within the existing Miami data center to expand, he said. "We will decide where to go next," he said.

Terremark's board has unanimously approved the deal, but it is still subject to shareholder vote. Verizon said it has already gotten approval commitments from three shareholders, representing 27.6 percent of the outstanding stock, Shammo said. The deal also has to clear Hart-Scott-Rodino regulatory approvals before closing, Shammo said.

When asked about the impact of the deal on Terremark's VMware relationship, executives said there would be none. VMWare bought 4 million shares in Terremark back in 2009, and Terremark uses the VMWare platform to power its offerings, Medina said.

Terremark has done the "hard work" in building the data center, assembling the team and developing relationships, said McAdam. "We can provide the jet fuel to take off, to kick this into a higher gear," he said.