Australia's largest listed data centre operator, NextDC Ltd (ASX: NXT) recently purchased a 14.1% stake in fellow listed company Asia Pacific Data Centre Group (ASX: AJD).
Asia Pacific Data Centre Group ('APDC') owns all of NextDC's data centres (at which NextDC is technically a tenant). APDC is currently facing an Extraordinary General Meeting next week, at which its largest security holder, 360 Capital Group Ltd (ASX: TGP), is seeking to remove the responsible entity of APDC and replace it with a 360 Capital nominee.
NextDC has purchased 14.1% of APDC's shares on-market at an average price of $1.78, and will vote its stake against 360 Capital's resolutions. It is effectively a blocking stake aiming to prevent a change of management at APDC. NextDC obviously benefits from a tight relationship with APDC as it is leasing its data centres from APDC over the long term.
Unwelcome news for NextDC shareholders?
While the acquisition of APDC shares may prove a sound strategic move for NextDC, it is uncertain whether it will be good news for NextDC shareholders. APDC most recently had Net Tangible Assets of $1.43 per share, which means NextDC has had to pay a 22% premium to the company's book value to secure its strategic stake.
Also, NextDC stated that its APDC purchase was funded through cash provided through its recent Notes III offering. One thing that jumped out at me was that Notes III pay a 6.25% annual interest rate, while Asia-Pacific Data Centre pays a 5.4% dividend.
So, in addition to paying above the odds for APDC units, NextDC is effectively paying 0.8% per annum to own APDC units. Fortunately, the transaction is quite small at just $29 million, and the price may be well worth paying if it secures APDC's current board and management. We'll keep you updated on the results of next week's Extraordinary General Meeting.
