Equinix (EQIX) To Divest Eight Data Centers Worth $874M

Global data centersolution and service provider, Equinix Inc. (NASDAQ:EQIX) reported that it has inked a deal with DigitalRealty Trust, Inc. (NYSE:DLR) to sell its eight data centers for $874.4 million. The strategic move should help the company trim its debt load and thereby improve the health of its balance sheet.

The sale includes assets located in London, Amsterdam and Frankfurt. The transaction is expected to close in the third quarter of 2016. The transaction is subject to customary regulatory approvals and closing conditions, together with approval from the European Commission.

Digital Realty is engaged in owning, acquiring, repositioning and managing technology-related real estate. The portfolio of the company includes applications and services critical to day-to-day operations of technology industry tenants.

Separately, Equinix has negotiated an agreement to acquire Digital Realty’s facility in Paris and the related operating business for $215 million. The acquisition is expected to close in the second half of 2016.

Equinix is streamlining its business for better long-term growth opportunities. Equinix is presently focusing on improving customer experience through the Equinix Customer One program.

Equinix exited first-quarter 2016 with cash, cash equivalents and short-term investments of $646.1 million. The company’s total debt principal outstanding was $7.24 billion as on Mar 31, 2016. It generated cash from operating activities of $104.3 million in the first quarter. Hence, selling its non-core assets should enable the company to reduce its debt, enhance its operational efficiencies and improve its financial condition.

Last Words

Expansion in important markets and consolidation of facilities in existing ones has been an important part of Equinix's core strategy. Equinix continuously strives to boost its revenue base as well as profitability by offering upgraded technology to attract clients. Moreover, the recurring revenue model has provided much-needed support to the company's revenue stream over the years. The company's cloud and IT service businesses are its fastest growing segments and account for roughly one fourth of the total revenue.

Nonetheless, Equinix competes with Internet data centersoperated by established communications carriers like AT&T (NYSE:T) , CenturyLink, Inc. (NYSE:T) and Verizon Communications (NYSE:VZ).

Currently, Equinix has a Zacks Rank #3 (Hold).