Digital Realty Trust: The Merger, The Dividend, The Arbitrage

So, DLR and DFT are merging. Is that a good thing? Back on June 9th Digital Realty Trust (DLR) announced it was merging with DuPont Fabros Technology (DFT) in an all-stock transaction. At the conference call announcing the merger, several slides in the presentation make the case that this is a good thing.

This first slide gives a general overview of the deal. My big takeaway from here was that each share of DFT would be exchanged for 0.545 shares of DLR and that this had an implied price of DFT shares of $64.32. The NPV of the dividends that I calculate each share of DFT will get after the merger is very close to the figure that DLR management gives as the implied price of the DFT shares.

This slide illustrates some of the advantages the merger will give DLR in several of its top areas. In Northern Virginia, the combined company will have 50% more locations, twice as much space and more than three times as much power while keeping occupancy at 97%. In Chicago, the merger will up the number of locations by 40%, space by about 50%, and power by more than double. And, it will increase the occupancy rate. Even Silicon Valley will add a new location, increase space by around 30%, and nearly double power.

This last slide gives some details on what I think is the best feature of the deal. For DLR, it gets a much bigger presence and increased capability to provide hyper-scale data centers for cloud providers. DFT gets the benefit of a larger company with a... Read more

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