Microsoft pays $200M for two Savvis data centers

Savvis Inc. said Friday that it sold assets in two adjacent data centers in Santa Clara, Calif., to Microsoft for $200 million. As a result of the sale, Savvis also reduced its 2007 outlook.

Seattle-based Microsoft Corp. (Nasdaq: MFST) was the sole customer in both data centers, under the terms of a Savvis colocation contract that was to expire at the end of 2010, Savvis said in a release. As part of the sale, the service contract for the two facilities terminates as of the end of June 2007.

The total sale price includes $190 million in cash and forgiveness of about $10 million in previously-advanced revenue, as well as reflects early termination of the service contracts related to the data centers.

Phil Koen, Savvis chief executive said in a statement that the transaction is "great" for both Savvis and its continuing customer Microsoft. "Microsoft gets full control of two data centers they already occupy. Savvis can redeploy the proceeds into investments in higher-margin, higher-growth assets."

Jeff Von Deylen, Savvis chief financial officer, said in a statement that the contract with Microsoft had provided Savvis with only modest growth from contractual price escalators, and proceeds from the asset sale will fund expansion that's expected to produce higher growth. "Over the next twelve months we expect to reinvest the proceeds in initiatives including selected data center expansions and potential network enhancements. As a result of these investments, we would expect to exceed the lost annualized adjusted EBITDA from this transaction within 24 months."

Von Deylen said the company will announce the initiatives as plans are finalized "over the next few quarters."

Savvis said that as a result of the asset sale to Microsoft, its management's current expectations for 2007 include total revenue in a range of $805 million to $820 million, compared to the previously anticipated $820 million to $835 million; and adjusted EBITDA in a range of $155 million to $165 million, compared to $160 million to $170 million previously anticipated.

St. Louis-based Savvis Inc. (Nasdaq: SVVS) provides hosting, networking and application IT services.
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