CyrusOne (NASDAQ: CONE) released its Preliminary Proxy Statement (PREM14A) related to its $15bn or $90.50 per common share take-private through a merger with entities of private equity firms KKR and Global Infrastructure Partners (GIP). Below we summarize notable events and key takeaways regarding the background and process whereby KKR and GIP acquire CyrusOne through a merger, as well as competition from various unidentified “Party” participants.

Prior Exploration of a Sale Transaction in 2019 – CyrusOne

In mid-March and early-April 2019, CyrusOne received two unsolicited letters from one of its competitors, known as Party A, which included a non-binding proposal to acquire CyrusOne in an all-stock transaction at an exchange ratio that implied a value of ~$64.62 per share of common stock. At the time, press reports from Bloomberg named Digital Realty (NYSE: DLR) as the party showing interest.

CyrusOne’s board of directors, together with Morgan Stanley, the company’s financial advisor, and Cravath, Swaine & Moore, the company’s legal advisor evaluated Party A’s proposal. Subsequently, the firms began a formal process to solicit proposals, contacting over 15 potential acquirors.

Between April and mid-August 2019, CyrusOne, organized an electronic data room and management presentation to facilitate potential acquirors’ due diligence.

Potential Acquirors

CyrusOne executed non-disclosure agreements (NDAs), facilitated due diligence, and engaged in discussions regarding a potential transaction with 11 potential acquirors, including KKR, Party A, as well as:

  • Party B: financial sponsor with a significant infrastructure portfolio. Previously, part of a joint-bidding consortium with KKR
  • Party C: financial sponsor with significant infrastructure and real estate portfolios. Ultimately, one of the final bidders in the 2021 sale process
  • Party D: financial sponsor with significant infrastructure and real estate portfolios
  • Party E: financial sponsor with significant infrastructure and real estate portfolios. Part of a joint-bid with Party I
  • Party F: one of CyrusOne’s competitors
  • Party G: financial sponsor. Previously, part of a joint-bidding consortium with KKR
  • Party H: pension fund. Previously, part of a joint-bidding consortium with KKR
  • Party I: digital infrastructure fund. Part of a joint-bid with Party E
  • Party J: financial sponsor

In July and August 2019, CyrusOne received initial non-binding indications of interest to acquire the company from:

  1. Party A, which made its initial approach at a value of ~$64.62 per share of common stock (see above)
  2. KKR, which was at that time joint-bidding with Party G. Subsequently, Party B and Party H were added to this joint-bidding consortium
  3. Party E, which subsequently decided to joint-bid with Party I

At the time, press reports named KKR, Stonepeak Infrastructure, and I Squared Capital, as one collective bidder group. Additionally, press reports named EQT Partners and Digital Colony (DigitalBridge’s private equity fund) as having partnered together. Therefore, Party G and Party B could be Stonepeak Infrastructure and I Squared Capital, while Party E and Party I could be EQT Partners and DigitalBridge.

Final Bids – 2019 Sale Process

  • August 28, 2019: Morgan Stanley sends a process letter to each of the potential acquirors, requesting a final bid by September 30, 2019
  • September 13 to 24, 2019: potential acquirors Party A, Party C, and the joint-bidding consortium consisting of Party E and Party I each withdraw from the process. Specifically, these parties indicate that they were unlikely to be able to submit a bid at an attractive valuation for CyrusOne and its shareholders
  • September 26, 2019: joint-bidding consortium consisting of KKR, Party B, Party G, and Party H indicates that it would not be able to submit a bid by the deadline and that its bid, if any, would likely be lower than the then-current trading price of CyrusOne’s common stock. For reference, CyrusOne’s stock price closed at $77.19 on September 26, 2019
  • September 30, 2019: as of the final bid deadline, none of the potential bidders submitted a bid letter or any comments on the draft merger agreement

Following this result, CyrusOne’s board ended the formal process of exploring a potential sale transaction. Instead, the board directed the company to focus on executing as a standalone public company.

Preface to the Merger – CyrusOne Under Pressure

Surrounding CyrusOne’s disappointing Investor Day, in June 2021, the company was advancing on a number of distinct corporate actions to appease shareholders. Particularly, CyrusOne was engaging with activist shareholders, exploring a potential sale of non-core data center assets, and separating from its CEO, who lasted slightly more than one year.

Shareholder Discussions

During the course of 2021, members of CyrusOne’s management and its board had discussions with select shareholders. Through these discussions, the shareholders encouraged CyrusOne to explore whether a change-of-control transaction would be in the best interests of the company and its shareholders.

Notably, during the quarter-ended March 31, 2021, JANA Partners, an event-driven hedge fund manager which “utilizes shareholder engagement to unlock” fundamental value in public companies, initiated a long equity position in CyrusOne.

Data Center Portfolio Sale

In April 2021, CyrusOne engaged DH Capital to serve as financial advisor for the potential divestiture of some of the company’s assets, including a possible sale of certain data centers in select metropolitan areas. Reportedly, these assets included a portfolio of four income-producing data centers in Houston, Texas.

Separation with CEO

On July 29, 2021, CyrusOne separated with Bruce Duncan as President and Chief Executive Officer of the company, and he resigned from the board of directors. Following this separation, David Ferdman, a director on CyrusOne’s board, was appointed Interim President and Chief Executive Officer.

Background of the Merger – KKR and GIP Acquire CyrusOne

CyrusOne’s re-engagement with potential acquirors regarding a sale process commenced following receipt of an unsolicited proposal to acquire the company.

  • August 11, 2021: Party I submits an unsolicited, preliminary, non-binding indication of interest letter to CyrusOne’s board proposing to acquire CyrusOne at a price of $80.00 in cash per share of common stock
  • August 17, 2021: CyrusOne’s board forms a working group, known as the Committee, composed of Lynn Wentworth (Chair of the Board), Alex Shumate (Lead Independent Director), David Ferdman, Denise Olsen, and William Sullivan. Specifically, this Committee further facilitates the CyrusOne board’s day-to-day oversight of the sale process
  • August 19 and 24, 2021: CyrusOne formally engages Morgan Stanley and DH Capital, respectively, as financial advisors to explore strategic alternatives and potentially execute a transaction
  • August 26, 2021: CyrusOne and Party I execute an NDA. In turn, Party I receives access to an electronic data room containing information on CyrusOne’s business, operations, financials, material contracts, and real estate leases
  • September 18, 2021: KKR and Party B submit a joint non-binding indication of interest to CyrusOne’s board proposing to acquire CyrusOne at a price of $82.50 in cash per share of common stock
  • September 20 and 21, 2021: KKR and Party B, respectively, execute separate NDAs. Thereafter, KKR and Party B gain access to the data room

Party J and Party I Exit Process

  • September 24, 2021: Party J and Morgan Stanley discuss the potential for an acquisition of CyrusOne. However, Party J states that it needs to evaluate its financial capacity to consummate any significant transaction. Subsequently, Party J does not re-engage with Morgan Stanley or CyrusOne
  • September 25, 2021: Party I informs Morgan Stanley that it has completed its preliminary due diligence and that it remains interested in acquiring CyrusOne. However, Party I reduces its proposed purchase price from its initial offer of $80.00, to $77.00 in cash per share of common stock. In response, CyrusOne revokes Party I’s access to the data room

Market Speculation Ensues, Process Accelerates

On September 28, 2021, market speculation regarding CyrusOne’s ongoing review of strategic alternatives, including a potential sale of CyrusOne was published in the financial press.

As a result, from September 28 to October 1, 2021, 14 potential counterparties, consisting of infrastructure funds, strategic buyers, REITs, and private equity firms, including Party A, reach out to Morgan Stanley to discuss a potential acquisition of CyrusOne or certain of its data centers.

Overall, none of these potential counterparties ultimately submit any written proposal to acquire CyrusOne or any of its assets. Additionally, Party A verbally confirms to Morgan Stanley that they are not interested in pursuing a potential acquisition of CyrusOne.

Morgan Stanley Contacts Other Potential Counterparties
  • Late September 2021: Morgan Stanley reaches out to initiate contact with GIP, Party D, Party F, and Party E regarding a potential transaction with CyrusOne. Initially, Party D and Party F express preliminary interest in re-exploring a potential transaction. However, both parties ultimately decline to execute an NDA and do not submit a written acquisition proposal
  • September 30, 2021: Party E and GIP each separately indicate that they may have an interest in exploring a potential transaction
Party C Enters as Rival Bidder
  • October 5, 2021: Party C submits a preliminary non-binding indication of interest to CyrusOne’s board, proposing to acquire CyrusOne at a price of $82.00 in cash per share of common stock

At the time, press reports from the Wall Street Journal named Brookfield Asset Management as a party in “advanced talks” with CyrusOne. Therefore, Party C could be Brookfield Asset Management.

KKR, Party C, and Party E Progress in Separate Proposals

  • October 5, 2021: KKR and Party B jointly submit a second non-binding indication of interest to CyrusOne’s board. This proposal remains at the same acquisition price of $82.50 in cash per share of common stock as their prior proposal from September 18, 2021
  • October 7, 2021: CyrusOne’s draft merger agreement is made available by Cravath to KKR and Party B
  • October 8, 2021: Party C executes an NDA. In turn, Party C gains access to the data room, and also receives CyrusOne’s draft merger agreement
  • October 15, 2021: Kirkland & Ellis, legal counsel to KKR and Party B, sends a revised draft of the merger agreement to Cravath
  • October 21, 2021: Party E submits a non-binding indication of interest to CyrusOne’s board proposing to acquire CyrusOne at a price between $82.00 and $85.00 in cash per share of common stock
KKR Loses its Joint-Bidding Partner, Party B
  • October 23, 2021: Party B indicates to Morgan Stanley that Party B would no longer be able to support the previously proposed purchase price of $82.50 in cash per share of common stock. Additionally, Party B notes that it is withdrawing from the bidding process and that it retracts its prior joint proposals made alongside KKR
Party C Raises its Offer Price for CyrusOne
  • October 23, 2021: Party C submits to CyrusOne’s board a revised non-binding indication of interest, increasing its proposed acquisition price to $85.00 in cash per share of common stock. Also, this proposal is accompanied by a revised draft merger agreement and financing commitment letters
  • October 27, 2021: Cravath sends a revised draft of the merger agreement on behalf of CyrusOne to Skadden, Arps, Slate, Meagher & Flom, outside legal counsel to Party C
KKR Partners with GIP, Reaffirms Offer Price
  • October 25, 2021: KKR holds a call with Morgan Stanley to request CyrusOne’s consent for KKR to partner with GIP as a co-bidder. Subsequently, on October 29, 2021, CyrusOne’s board permits KKR and GIP to partner with each other as joint-bidders, known as the KKR/GIP Consortium
  • October 26, 2021: GIP executes an NDA. In turn, GIP gains access to the data room
  • October 27, 2021: KKR submits a non-binding indication of interest letter confirming its continued interest in consummating an acquisition of CyrusOne on the same terms and conditions from its prior indication of interest letter with Party B, including a purchase price of at least $82.50 in cash per share of common stock
Party E Joins Sale Process
  • October 30, 2021: CyrusOne and Party E execute an NDA. In turn, Party E gains access to the data room
CyrusOne Internal Evaluation of Bidders
  • November 5, 2021: CyrusOne’s Committee meets with the company’s management, Morgan Stanley, DH Capital, and Cravath. During the meeting, Morgan Stanley notes that the KKR/GIP Consortium and Party C each appear to be spending significantly more time and resources in pursuit of a potential acquisition of CyrusOne than Party E

CyrusOne Sets Final Proposal Deadline

  • November 5, 2021: Morgan Stanley notifies each of the KKR/GIP Consortium and Party C that CyrusOne expects final proposals and near-final transaction documentation by November 12, 2021, with a potential announcement of a transaction by the morning of November 15, 2021. Additionally, Morgan Stanley requests a revised bid from Party E by November 12, 2021
  • November 10, 2021: Kirkland & Ellis sends a revised draft of the merger agreement on behalf of the KKR/GIP Consortium to Cravath
  • November 11, 2021: Skadden sends a revised draft of the merger agreement on behalf of Party C to Cravath. Additionally, Party C indicates to Morgan Stanley that its proposed purchase price was currently still $85.00 in cash per share of common stock
  • November 12, 2021: the KKR/GIP Consortium submits a non-binding proposal to CyrusOne’s board proposing to acquire CyrusOne at a price of $84.00 in cash per share of common stock
  • November 12, 2021: Party E submits to Morgan Stanley a revised non-binding indication of interest specifying that Party E could complete due diligence and negotiation of a definitive acquisition agreement over the course of the next four weeks. Also, the revised indication of interest includes a proposed acquisition price of $85.00 in cash per share of common stock, and is accompanied by financing commitment letters
  • November 13 and 14, 2021: financial and legal advisors of CyrusOne continue discussions in order to finalize the merger agreement and other transaction documents with financial and legal advisors of each of the KKR/GIP Consortium and Party C, in parallel
Best and Final Purchase Price Proposals
  • Early Morning of November 14, 2021: Morgan Stanley separately notifies each of the KKR/GIP Consortium and Party C that CyrusOne expects to receive best and final purchase price proposals that day
  • Afternoon of November 14, 2021: each of the KKR/GIP Consortium and Party C submit written best and final proposals to acquire CyrusOne. Firstly, the KKR/GIP Consortium proposal contains a purchase price of $90.50 in cash per share of common stock. Secondly, Party C’s proposal contains a purchase price of $86.00 in cash per share of common stock

CyrusOne Selects KKR and GIP as its Merger Partners

CyrusOne’s board decides to proceed with the proposal from the KKR/GIP Consortium. As such, the CyrusOne board unanimously authorizes and approves the execution and delivery of the merger agreement and other transaction documents.

Following the meeting of CyrusOne’s board, Morgan Stanley notifies the KKR/GIP Consortium that CyrusOne’s board has approved their merger agreement. Additionally, Morgan Stanley notifies Party C and Party E that CyrusOne would not be proceeding with a transaction with either of them. Thereafter, CyrusOne and the KKR/GIP Consortium execute the merger agreement and other ancillary documentation related to the merger.

On November 15, 2021, CyrusOne, KKR and GIP issue a joint press release announcing the execution of the merger agreement and the terms of the merger at $90.50 in cash per share of common stock.

Merger Process In-Depth – Read More

Want to read more from our “Merger Process In-Depth” series? Check-out our coverage on the merger processes for the following digital infrastructure deals:

  1. American Tower’s $10.1bn purchase of CoreSite Realty
  2. Blackstone’s $10bn deal for QTS Realty
  3. DigitalBridge’s $1.1bn pursuit of Landmark Infrastructure
  4. Cyxtera’s $3.4bn combination with Starboard Value
  5. DigitalBridge’s $854m take-private of Boingo Wireless
Mary Zhang covers Data Centers for Dgtl Infra, including Equinix (NASDAQ: EQIX), Digital Realty (NYSE: DLR), CyrusOne, CoreSite Realty, QTS Realty, Switch Inc, Iron Mountain (NYSE: IRM), Cyxtera (NASDAQ: CYXT), and many more. Within Data Centers, Mary focuses on the sub-sectors of hyperscale, enterprise / colocation, cloud service providers, and edge computing.

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