(Adds credit rating agency comment, conference call details, share price reaction)
By Alastair Sharp
TORONTO, July 31 Shaw Communications Inc will pay $830 million to buy U.S. data center services provider ViaWest Inc, the Canadian media and cable company said on Thursday, in a deal aimed at bolstering its cloud computing credentials.
Shaw said the acquisition from ViaWest majority owner Oak Hill Capital Partners and others would help accelerate the development of its Canadian data center platform. The deal is worth $1.2 billion, including the assumption of $370 million of net debt.
Shares in Shaw slipped 2 percent to C$24.75 in morning trade on the Toronto Stock Exchange.
Shaw said that ViaWest has 27 data centers, mostly in the U.S. Southwest, and that Shaw would keep the company in its Denver headquarters as a stand-alone subsidiary whose expertise can be made available to Shaw's own data management and cloud services customers.
"With the acquisition of ViaWest, Shaw gains significant capabilities, scale and immediate expertise in the growing marketplace" for data services for business, Chief Executive Officer Brad Shaw said in a news release.
Earlier this year, Shaw started building its first Shaw Business data center, due to open in the first half of 2015.
The deal likely scuttles any talk of Shaw selling itself to Rogers Communications or taking part in a wireless joint venture with Quebecor's Videotron, Canaccord Genuity analyst Dvai Ghose said in a note.
He said the combination did not appear to offer much in the way of synergy between Shaw's cable operations and ViaWest's data centers, would be dilutive in the near term, and increases Shaw's debt leverage.
Credit rating agency DBRS said the deal was neutral to mildly positive for Shaw's business profile and modestly credit-negative due to the roughly C$500 million ($460 million) of cash and C$400 million of debt financing.
Shaw said the deal should close in September, subject to U.S. regulatory approval. The transaction will be funded using cash on hand and Shaw's existing credit facility, with no material effect on Shaw's free cash flow, the company said.
ViaWest, which employs more than 350 people, has notched 15 percent compound annual growth for both revenue and earnings before interest, taxation, depreciation and amortization, or EBITDA, over the last three years.
It gets almost three-quarters of its revenue from what are known as co-location services, in which a company provides floor space, electricity and high-speed links for their customers' servers.
ViaWest co-founder Nancy Phillips said the heavily managed services they offer protect the business from pricing pressures at the lower end of the market that could otherwise pinch margins.
Shaw said ViaWest's 10 biggest customers contribute 28 percent of revenue, with most of the 1,300 total customers paying a monthly recurring bill of $20,000 or less.
TD Securities acted as financial advisor to Shaw, with Davies Ward Phillips & Vineberg LLP and Simpson Thacher & Bartlett LLP as legal advisers.
RBC Capital Markets advised ViaWest, with Paul, Weiss, Rifkind, Wharton & Garrison LLP providing legal counsel. ($1 = 1.0880 Canadian dollars) (Additional reporting by Ashutosh Pandey in Bangalore; Editing by Saumyadeb Chakrabarty, Nick Zieminski and Jonathan Oatis)