Microsoft Assumes Savvis Leases for $200M

Microsoft has bought two data centers in Santa Clara, Calif. from Savvis Communications for $200 million, the two companies said late Friday. Microsoft is the sole tenant in both centers, and Savvis had been serving as landlord. (UPDATE: Digital Realty Trust is actually the landlord of these centers. Savvis leased the sites and had a colocation contract with Microsoft.) The deal allows Microsoft to secure control of two key data centers, while providing Savvis with a pile of cash, which no doubt helped it to prepay $342.5 million of its debt on Friday.

"This is a great transaction for both SAVVIS and Microsoft, a valued - and continuing - SAVVIS customer," said Savvis CEO Phil Koen. "Microsoft gets full control of two data centers they already occupy. SAVVIS can redeploy the proceeds into investments in higher-margin, higher-growth assets."

Koen also indicated that Savvis may soon be purchasing more data center space for its own use. "As we continue to focus on providing IT infrastructure as a service, we are exploring investment opportunities including further network capabilities and expansion of our data center footprint with top-quality facilities in high-demand markets." Savvis chief financial officer Jeff Von Deylen indicated the expansions would be announced "in the next few quarters." Savvis is already in the process of developing four new data centers Atlanta, New York, Washington, DC and Silicon Valley.

The two Santa Clara facilities sold to Microsoft included 250,000 square feet of raised floor technical space, according to Savvis, which said the contract with Microsoft generated approximately $16.5 million of revenue in the first half of the year. "The acquisition of these assets is an important part of our vision for a globally scaled data center infrastructure that will keep pace with user demand for innovative online services," said Arne Josefsberg, general manager, infrastructure services for Microsoft.