Digital Realty, DuPont Fabros to Merge

The all-stock transaction valued at $7.6 billion paves the way for the creation of the second-largest data center REIT and the eighth-largest publicly traded REIT in the country.

A. William Stein, Digital Realty
William Stein, CEO of Digital Realty

Digital Realty Trust Inc. has entered into a definitive agreement with data center provider DuPont Fabros Technology Inc. to merge in an all-stock transaction valued at approximately $7.6 billion. It’s a move that paves the way for Digital Realty to become the second-largest data center REIT in the country.

It will be quite a marriage. Of particular note, DuPont Fabros will bring to the table 12 purpose-built, hyper-scale data centers totaling approximately 3.4 million net rentable square feet in the highly coveted data center hubs of Northern Virginia, home to, among several other facilities, the 446,000-square-foot, 41.6-megawatt ACC7 facility in Ashburn; metropolitan Chicago; and Silicon Valley. Additionally, DuPont Fabros has a prime development portfolio consisting of six projects—located in Ashburn, Va., Chicago, Santa Clara, Calif., and Toronto—that are scheduled to come online within the next 12 months, as well as strategic land holdings in Ashburn and Oregon, and newly acquired acreage in Phoenix.

“DFT and Digital’s product offerings, customer rosters and respective geographic footprints complement each other well and provide many opportunities to grow our combined business over the coming years,” William Stein, CEO of Digital Realty Trust, wrote in a letter to the DuPont Fabros team following the announcement of the merger agreement. “DFT has truly distinguished itself in the industry through its top-tier, strategically located portfolio as well as its world-class customer base of blue-chip companies. As a combined company, we will be better able to meet the growing needs of enterprise-level customers around the globe amid the rapid, ongoing shift to third-party cloud providers.”

Money is Not an Issue in this Union

Per terms of the agreement DuPont Fabros shareholders will receive a fixed exchange ratio of 0.545 Digital Realty shares per DuPont Fabros share, at an implied price per share of $64.32. The multi-billion-dollar price tag includes the assumption of $1.6 billion of existing debt, which Digital Realty plans to refinance through investment grade corporate bonds and other financings. In preparation for the acquisition, Digital Realty has secured a fully committed $1.4 billion bridge loan facility, courtesy of BofA Merrill Lynch and Citigroup.

The planned unification has its supporters; the Digital Realty-DuPont Fabros agreement appears to be well received by analysts. “I think the merger increases Digital Realty’s speed to market in several markets‎ and offers highly achievable expense synergies,” Jonathan Atkin, managing director with RBC Capital Markets, told Commercial Property Executive.

The boards of directors of both Digital Realty and DuPont Fabros have provided their unanimous approval of the transaction, which remains subject to the consent of the companies’ shareholders and other customary closing conditions. If all goes as anticipated, the merger will close in the second half of 2017. With an equity market capitalization of $25.2 billion, the resulting Digital Realty will then be the eighth-largest publicly traded REIT in the U.S.

Image courtesy of Digital Realty Trust Inc.