CenturyLink has agreed to buy Savvis in a cash and stock merger valued at $40 per share, or a total of approximately $2.5 billion, plus net debt of approximately $0.7 billion which will be assumed or refinanced at close.

A statement announcing the merger said: "Together, CenturyLink and Savvis will operate 48 data centers located in North America, Europe, and Asia with more than 1.9 million sq ft of gross floor space;a national 207,000 route mile fiber network;a 190,000 mile global access network."

CenturyLink anticipates integrating its hosting business and Savvis'managed hosting and cloud services into a single CenturyLink business unit. This integrated hosting business will be based in St. Louis and led primarily by key members of the Savvis leadership team, including Savvis CEO James Ousley, who will head the unit, the statement said.

Savvis stockholders will receive $30 per share in cash and $10 in shares of CenturyLink common stock, subject to adjustment. The consideration represents an 11% premium over Savvis'closing stock price as of the close of trading on April 26, 2011 and a premium of 53% compared to Savvis'stock price at the beginning of the year.

In February this year Jim Ousley told Datacenterdynamics that telcos needed to buy colocation companies in order to bolster their cloud computing propositions. The first big acquisition of the year was Verizon's buy out of Terremark for $1.4bn in January. Speculation on the future of other colocation companies has already begun. 

Savvis reported a net loss of $1.8m for Q1 2011 down from  a loss $11.3m for Q1 2010. Revenue was up at $257m from $216m
 

"The transaction creates a premier managed hosting and colocation provider with global scale in a high growth sector, and is expected to be accretive to revenue growth and cash flow per share,"said Glen F. Post, III, CenturyLink chief executive officer and president. "Today, businesses are shifting the way they manage their information technology services and infrastructure, and this transaction helps us meet these needs by offering Savvis'leading products and services coupled with CenturyLink's network. We look forward to working with the Savvis team to leverage CenturyLink's significant scale and scope to fully realize the potential of Savvis'capabilities for our combined customers, while also enhancing value for our shareholders and providing opportunities for our employees."

"As migration to cloud-based services continues to accelerate rapidly, a strategic combination was a natural choice to create significant scale and become part of a large global network for the benefit of our customers, stockholders and employees,"said James E. Ousley, chairman and chief executive officer of Savvis. "We believe that combining our proven capabilities in cloud infrastructure and managed hosting with CenturyLink's hosting assets and large base of business customers will create powerful opportunities to accelerate growth. We also look forward to making the full resources of a much larger network infrastructure available to our customers."

The acquisition of Savvis is expected to improve CenturyLink's revenue, EBITDA and free cash flow growth profile. CenturyLink expects to realize approximately $70 million in full run-rate annual operating cost and capital expenditure synergies. 

Following the closing of the transaction, CenturyLink will employ approximately 50,000 people based on the total number of CenturyLink and Savvis employees as of April 26, 2011.