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Is Verizon (VZ) Planning to Divest Data Centers to Equinix?

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According to a recent report by Cowen & Co., U.S. telecom giant Verizon Communications Inc. (VZ - Free Report) is about to sign a deal with Eqinix Inc. (EQIX - Free Report) to divest its data center business for a consideration of around $3.5 billion. In Jan 2016, Verizon confirmed that it is considering vending its data center portfolio. The company’s portfolio consists of 48 data centers most of which were gained through the $1.4 billion acquisition of data center provider Terremark in 2011.

The prospects of colocation revenue are not very exciting, and Verizon is thus looking for ways to avoid investing more capital in the segment. Over the years, many telecom operators have been actively purchasing data to counter shrinking revenues from their traditional telecom services. The Verizon data center assets widely considered the most desirable are in Miami and Culpeper, Va., near Washington, D.C. Besides the Terremark facilities, the company also owns some of its own data centers.

Over the last couple of years, Verizon has been restructuring its business model and divesting non-core assets. In mid-2015, Verizon leased over 11,300 wireless towers and sold 165 of the same to American Tower Corp. (AMT - Free Report) for $5.06 billion. In mid-2016, Verizon sold its local wireline operations (FiOS Internet and video) in California, Florida and Texas to regional wireline operator Frontier Communications Corp. (FTR - Free Report) for around $10.5 billion.

On the other hand, Equinix is a major colocation facility provider. Growing implementation of cloud computing technology has increased demand for data center space. Equinix provide space, power and cooling facilities to its customers. Amazon Web Services, the cloud computing business of Inc. (AMZN - Free Report) and Microsoft Corp. (MSFT - Free Report) are major clients of Equinix.

Verizon currently carries a Zacks Rank #3 (Hold) while Equinix sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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