By Sarah Young and Liana B. Baker
LONDON/NEW YORK (Reuters) - U.S. data center company Equinix Inc (O:EQIX) said on Friday it would buy British peer TelecityGroup (L:TCY) in a deal worth 2.35 billion pounds ($3.6 billion) that would also end Telecity's pursuit of a smaller European rival.
Telecity , which runs computer centers that process traffic on the Internet, said in a statement its board had recommended Equinix's offer, and as such was terminating an all-stock deal to buy Netherlands-based Interxion Holding NV (N:INXN) for $2.2 billion.
Dealmaking has picked up among the data center companies, which benefit from having bigger networks to attract multinational clients that want their services to reach across markets.
Underpinning deal activity in the sector is the industry's plans to tap growing demand across new geographies for "cloud" technology, whereby the data and processing for devices such as smartphones use millions of remote servers.
The acquisition of Telecity by Equinix, a deal that Reuters on Thursday reported was near fruition, would create the largest data center company in Europe.
Equinix Chief Executive Steve Smith said he had looked closely at Interxion and Telecity as targets but ultimately chose Telecity because its assets and brand were a better fit.
"Their customer base and footprint are more complementary to where we needed to go next," Smith said in an interview.
While the purchase of Telecity would be the largest transaction in Equinix's history, Smith said, Equinix has a strong balance sheet and is open to further deals.
"This deal doesn't preclude us from taking action if there were other opportunities," he added.
Equinix said the approximate 1,145 pence per share deal represented a 27.3 percent premium to the Telecity's closing price on May 6, before talks were announced, and that Telecity shareholders would receive 572.5 pence per share plus 0.0327 of one new Equinix share.
Shares of Telecity, which have risen 21 percent since Equinix announced its interest, traded down 0.7 percent at 1,082 pence.
After completion of the deal, expected in the first half of 2016, TelecityGroup shareholders would hold 10.1 percent of the combined company and Telecity Executive Chairman John Hughes would join the board of Equinix.
New York-listed Interxion's shares were down 48 cents, or 1.5 percent, at $30.72.
Telecity was advised by Goldman Sachs (NYSE:GS), Oakley Capital, Barclays (LONDON:BARC) and Greenhill & Co. Equinix was advised by JP Morgan