Should you buy NEXTDC Ltd (ASX:NXT) shares after its takeover offer for Asia Pacific Data Centre Group (ASX:AJD)?

NEXTDC Ltd (ASX:NXT) has made a takeover offer for Asia Pacific Data Centre Group (ASX:AJD). Should you invest?

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The saga involving data centre operator NEXTDC Ltd (ASX: NXT), investment company 360 Capital Group Ltd (ASX: TGP), and real estate investment trust Asia Pacific Data Centre Group (ASX: AJD) appears to be over.

This morning NEXTDC announced that it has agreed terms with Asia Pacific Data Centre Group to acquire the remaining 70.8% of its shares it does not own via an unconditional all cash, on market takeover bid.

The REIT's major shareholder 360 Capital Group, which holds an interest of 67.3%, has stated that it intends to accept the offer in the absence of a superior proposal.

If 360 Capital does accept the other, it will mean NEXTDC would have an interest of 96.5%. This will allow the data centre operator to proceed to compulsory acquisition of the outstanding securities.

What offer has been made?

NEXTDC has offered a cash consideration of $2.00 per security and will allow two separate distributions to be made.

This includes a special distribution of $0.02 per security and a quarterly distribution of $0.02 per security which had already been declared.

With 115 million securities on issue, this offer values the REIT at approximately $230 million. This is well short of the independent valuation of $261 million given in June, but not surprising given that Asia Pacific Data Centre took the data centres off the market last month after failing to find a buyer this year.

It is also significantly less that the $300 million that 360 Capital and Asia Pacific Data Centre had offered to sell the centres to NEXTDC for at the start of the year.

Why is NEXTDC buying the data centres?

According to the release, NEXTDC believes there are benefits to owning the portfolio of data centres it currently leases given its expanded capital base.

Management estimates that the proposed acquisition of the REIT will provide NEXTDC with an additional $14 million of recurring annual cash flow savings and strengthen the balance sheet through the addition of further tangible assets.

What now?

I think this is a good price for NEXTDC to acquire the centres for and believe it strengthens its investment case.

Its shares may be expensive, but given the way the cloud computing market is exploding and the growing demand for data centre services, I believe it will deliver long-term earnings growth that justifies the premium.

Because of this, I see it as a great buy and hold option alongside industry peers Macquarie Telecom Group Ltd (ASX: MAQ) and Megaport Ltd (ASX: MP1).

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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