(WEB HOST INDUSTRY REVIEW) — Colocation provider and data center operator Terremark Worldwide (www.terremark.com) said Tuesday, in advance of its quarterly earnings call, that virtualization technology developer VMware would acquire an equity stake in the company.
According to the deal, VMware will acquire 4 million shares of newly issued Terremark common stock at $5 per share, for a total of $20 million, giving VMware approximately 5 percent of Terremark’s total common stock on a fully diluted basis.
“This investment in Terremark is an indication of the confidence VMware has in our Company,” said Terremark CEO Manuel D. Medina, quoted in the announcement, “and we are proud to have such a strong show of support from this long-term, strategic partner.”
Dan Golding, vice president and research director at Tier 1 Research (www.tier1.com), says there aren’t any unusual implications of the deal, it being a fairly straightforward purchase of common stock at just about the market value of that stock.
But he says the deal might be an indicator of a trend in financing. He suspects Terremark might have approached VMware for debt financing to help with the cost of the VMware software it was buying, and VMware elected to go the equity financing route.
“I think we’re going to see things like this happening more,” says Golding, “because a lot of the traditional avenues of financing are closed now for a lot of folks. So vendors who are seen as cash-rich – VMware, Microsoft, that sort of thing – are going to be hit up a lot more for financing of any sort.”
Terremark is a long-time partner of VMware and one of the largest and most committed service-provider users of the company’s technology. In April, VMware named Terremark its “Service Provider Partner of the Year” at its VMware Partner Exchange event.
“This investment in Terremark underscores the importance of this partnership,” says VMware VP of emerging products and markets, quoted in the press release, “and our belief in their ability to leverage our technologies as part of the VMware vCloud initiative to develop reliable and scalable cloud computing solutions.”
Golding says the financing deal may have the relatively minor side effect of solidifying that already strong relationship between the two companies.
“Certainly, this encourages VMware to do whatever they can to help Terremark,” he says. “And in that way it’s a positive for Terremark because VMware will want to protect its investment. But in the big scheme of things, this is a pretty small investment for VMware.”
