James Moore: A giant is born in the world of cloud computing

Outlook The ever-active market rumour-mill has had Telecity as a private equity target for a while now. The company appears to have come up with a better answer: a merger with a similar-sized rival to create a monster.

The proposed deal with US rival Interxion is not a knockout by any stretch. The US-listed group’s shareholders get 45 per cent of a London listed company in sterling paper that they might not want. But the price does represent a 15 per cent premium prior to the announcement.

For paying that for shares which are already much higher rated than their own, Telecity’s investors get the promise of some juicy cost savings and some even juicer growth prospects. But earnings won’t be enhanced until 2017. At least the dilemma of who to appoint as chief executive is also put off for a year. Interxion’s man will lead the charge.

Still, this is a deal Telecity shareholders should back and the market’s reaction suggests that they will. Demand for data centres, such as those operated by these two, is booming as cloud computing and mobile internet usage take off. Both are strong in Europe and the deal makes much more sense than selling out the attractive long-term prospects Telecity offered just on its own to private equity funds for a small short-term bung.