Digital Realty-Telx Deal? Canaccord Reiterates Buy

In a report published Monday, Canaccord Genuity analyst Gregory Miller reiterated a Buy rating and price target of $77 on Digital Realty Trust, Inc. (NYSE: DLR). The company has agreed to acquire The Telx Group, Inc, according to Fitch, which first rated Digital Realty as BBB on Monday morning and then retracted the rating in the afternoon, based on the acquisition announcement.

The analyst believes that the combined entity would have the ability to create and extend Digital Realty's global platform, while driving the company's collocation and interconnection business.

"As Fitch notes, Digital Realty will operate 137 properties across 30 markets in 10 countries pro forma for Telx. Fitch assumes roughly $700M in equity issuance and $1.2B in other financing prior to the transaction closing suggesting an acquisition price around $1.9B, which is close to the ~$2B initially reported by Reuters last month," Miller reported.

The analyst believes that the deal, if it materializes, would be "strategically sound" and would boost Digital Realty's competitive position in the longer term. The analyst also believes that the deal would be "financed in an accretive fashion."

"In addition, we continue to believe additional M&A opportunities exist for DLR that will further strengthen the company's platform. We also note Fitch is reaffirming its rating and maintains the company has good access to capital," Miller added.