Switch gains after DigitalBridge agrees to purchase for about $11B in cash (update)

jeffbergen/E+ via Getty Images

Update 8:48am: Adds statement from Elliott Management.

Switch (NYSE:SWCH) rose 8.9% in premarket trading after DigitalBridge (NYSE:DBRG) agreed to purchase the data-center operator for about $11 billion in cash, including the assumption of debt. DigitalBridge gained 4.8%.

DigitalBridge (DBRG) and Australian infrastructure manager IFM Investors agreed to pay $34.25/share for Switch (SWCH), according to a statement. The deal represents an 11% premium to Tuesday's closing price and a 19% premium to its March 18 closing price, before a report about a potential sale was circulated.

The DigitalBridge (DBRG) deal follows a report from Bloomberg on Monday that DigitalBridge was competing against Brookfield Asset Management (BAM) for the data-center operator.

The transaction is expected to close in the second half of this year.

Goldman Sachs and Morgan Stanley acted as financial advisors to the special committee of the board of directors of Switch, and Latham & Watkins acted as its legal counsel. RBC Capital Markets served as lead financial advisor and TD Securities served as co-advisor to DigitalBridge and IFM, and Simpson Thacher & Bartlett LLP acted as their legal counsel.

Switch announced in November that its board approved a plan for the company to convert into a real estate investment trust, or REIT, like many other data-center operators. The change followed a push from activist Elliott Management.

“We congratulate Rob Roy, Thomas Morton, Gabe Nacht and the entire Switch team on this $11 billion transaction, which represents a valuation multiple that places Switch at the top of the data center industry," Elliott managing partner Jesse Cohn and senior portfolio manager Jason Genrich said in a statement. "This terrific outcome was only made possible by more than two decades of industry leadership, marked by Rob’s differentiated approach to data center design and innovation. We are confident in Switch’s future success as a private company, in partnership with the team at Digital Bridge."

The Switch deal follows a torrent of consolidation in the data-center space in recent years including CyrusOne's (CONE) $15 billion announced sale to KKR and Global Infrastructure Partners and American Tower's (AMT) purchase of CoreSite Realty. Blackstone (BX) also purchased QTS Realty Trust for about $10 billion last year.

Comments

[cwebjohn]

Was the market expecting DBRG to go it alone to finance the transaction thus discounting shares leading up to the announcement?

[DadRuss72]

@cwebjohn I think that’s exactly what happened. I told some yesterday that if I had a million dollars I would buy DBRG with it at $5.40.

[AndreP]

So is it still converting to a REIT? And, is DBRG still on track to converting to a C Corp? Anybody? Thanks.

[Scotts Miracle-Gro Sucks]

Glad I held on to this from the beginning, good for Switch

[stonergreg13]

Hopefully they didn’t overpay, but would assume Ganzi did his homework. SWCH had decent earnings and their CEO said sales continue at record levels.

DBRG is becoming very large, very quickly. Continue to add at these levels.

Greg

[DadRuss72]

DBRG’s quick access to cash through it’s managed funds is amazing.

[cwebjohn]

@DadRuss72 Ganzi said on the recent earnings call they were built for times like these. I guess he had some deals that fell into place once other buyers could not slice the pie.

[Longterminvest1997]

@DadRuss72
SWCH has very unique locations (Reno next to Tesla battery factory) and architecture/design advantages—this is a smart buy—and SWCH is growing. Gary A, who trashed SWCH repeatedly, never looked under the covers. A good deal for both companies in a unique time.

[DadRuss72]

@cwebjohn I heard him say that too. If memory serves he said “they aren’t gonna do a deal just to do a deal, only if it made sense. “. Something like that.