Did You See This Telecom Deal Coming?

Data services handler SAVVIS (Nasdaq: SVVS  ) didn't shock me when it found a buyer today. In the cloud-friendly IT services industry, Rackspace (NYSE: RAX  ) looks too richly valued to get picked up like that while Internap (Nasdaq: INAP  ) and its direct peers are too small to be attractive, but SAVVIS always looked like the medium-sized bowl of porridge that could fill Goldilocks up without overwhelming her.

No, what surprised me today was the identity of SAVVIS's buyer. On the face of it, regional telecom CenturyLink (NYSE: CTL  ) never looked like an obvious suitor. More logical stalkers would have included Verizon (NYSE: VZ  ) , AT&T (NYSE: T  ) , or perhaps Level 3 Communications (Nasdaq: LVLT  ) , all of which have the ambition to become larger cloud players and also the scale necessary to make this $2.5 billion deal.

But CenturyLink came a-knocking, and SAVVIS answered the door with open arms. And I really shouldn't keel over in shock. You see, I overlooked the telecom titan created by CenturyLink's blockbuster merger with Qwest Communications. It makes sense to plug SAVVIS into this two-headed beast. Besides, we're watching two of the Tier 1 operators of the Internet's backbone join forces here.

It's still surprising to see this good-sized cash-and-stock deal going down so close to the closing of the Century-Qwest merger. Wouldn't it make sense to work the inevitable kinks out of the first life-changing move before making another?

But then Global Crossing rushed to join Level 3 right after Verizon picked up Terremark Worldwide, and waiting for a peaceful moment was no longer an option -- things are changing too fast in the world of data services. Blink and you'll miss when Ma Bell puts herself back together again.

Guess it's just as good to bite the bullet right away -- two simultaneous integrations might even reveal some redundancies and synergies that would have been missed under two entirely separate processes.

Will CenturyLink be the final resting place for SAVVIS, or is this the start of a bidding war as the even bigger boys come around? Well, I thought the Verizon-Terremark deal could have been the end of it, but CenturyLink had other ideas.

In a fast-paced market like this one, it's important to stay on top of the latest news. Fall asleep at the wheel, and entire investing theses can crumble to pieces before you know it. The best way to stay informed is to add SAVVIS and other telecoms to your Foolish watchlist, and we'll make sure that your ear stays pressed to the heartbeat of the market. Get started right now:

Fool contributor Anders Bylund holds no position in any of the companies discussed here. AT&T is a Motley Fool Inside Value recommendation. Rackspace Hosting is a Motley Fool Rule Breakers pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On April 28, 2011, at 6:40 PM, captainstarbuck wrote:

    It was the smallest bowl of porridge, and the smallest chair, and the smallest bed that Goldilocks chose.

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