Goodman and Digital Realty Offer 42% Premium to Buy Minority Stake in NEXTDC
Key Facts
Goodman Group and Digital Realty have proposed buying a minority stake in NEXTDC at a 42% premium to the share price before its decline on Oct. 21, Reuters reported on Nov. 4. The proposal targets shares in the Australian data-center operator, while the term sheet said the companies do not currently intend to make a takeover offer or seek control of it. The term sheet left open the possibility of changing that position if circumstances change. The move follows a sharp drop in NEXTDC shares after a key project in Melbourne was delayed. Goodman and Digital Realty did not immediately respond to Reuters' request for comment.
Project problems form the immediate backdrop to investor interest in the company at this time. Upgrades to the electricity network needed for the M3 center in Melbourne have been delayed, pushing back about A$140 million in contracted customer revenue during the current financial year. NEXTDC announced the impact of the delay on Oct. 21, when its shares fell about 42%. The deferral indicates that contracted revenue will not be realized at the time expected during the financial year, while the project faces an electricity-infrastructure hurdle. According to the details available, the term sheet did not include a commitment by the companies to address the network delay or fund the project.
Pressure on the stock continued beyond the session in which the delay was announced: shares were down 45% since the start of the year through Nov. 4, according to Reuters. The decline puts the proposal in the context of a year marked by weak share performance, following disclosure of the impact of delayed electricity works in Melbourne. The proposed offer premium is tied to a reference price before the decline, while it does not by itself mean the stake purchase has been completed. Describing the deal as an investment in a minority stake is also consistent with reports that there is currently no intention to make a control bid. The possibility of changing that position remains conditional on circumstances changing, according to the term sheet.
In response to pressure on its operations and plans, NEXTDC said it would pause new development projects and future land purchases for the foreseeable future. It added that it would assess capital recycling opportunities, including the possibility of selling selected development sites. This means the company has put spending on expansion and land under review while considering options to dispose of some development assets. Published information did not specify the timing or outcome of any potential sales. The term sheet also does not indicate that the proposal will change the company's decisions about its projects or sites.
NEXTDC plans to announce a capital expenditure review on Nov. 20, the next stated step in the company's response to the effects of the Melbourne project delay. The announcement will follow its decision to pause new development and land purchases, and the company's indication that it is assessing potential sales of some development sites. Until then, the announced proposal remains an investment in a minority stake under the stated terms, not an active bid for control of the company. Goodman and Digital Realty also did not immediately respond to Reuters' request for comment on the proposal. The companies' current position remains subject to change if circumstances change, according to the term sheet.