Australian property developer Goodman Group and US data center operator Digital Realty have offered to acquire up to 9.9% of NextDC for approximately A$715 million ($499.7 million), seeking to take advantage of a sharp decline in the company’s share price following delays to a major infrastructure project.
The proposed after-market transaction values the shares at A$9.50 each, representing a 45.5% premium to NextDC’s Wednesday closing price of A$6.53, according to a term sheet. JPMorgan is leading the offer.
The approach comes at a difficult time for NextDC, whose shares have fallen 45% this year after the company warned that electricity network upgrades at one of its major Melbourne developments would delay about A$140 million in contracted customer revenue originally expected during the current financial year.
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The announcement triggered a severe market reaction. NextDC shares plunged 42% on October 21, as investors reassessed the company’s revenue outlook, development pipeline and capital requirements.
The offer from Goodman and Digital Realty provides an opportunity for shareholders to sell at a substantial premium to the depressed market price. For the two prospective investors, it offers exposure to a data center operator whose share price has been hit by project execution problems, even as demand for digital infrastructure remains a major investment theme.
The immediate pressure on NextDC stems from electricity infrastructure constraints affecting one of its major Melbourne projects. The company said last month that upgrades to the electricity network would delay the delivery of approximately A$140 million in contracted customer revenue this financial year.
The problem is part of a central challenge facing data center developers: securing sufficient electricity and connecting facilities to the grid can be as important as obtaining land, financing construction and signing customer agreements.
Data centers require substantial, reliable power supplies to run servers, cooling systems, and supporting infrastructure. Delays in electricity connections can prevent developers from bringing capacity online on schedule, pushing back revenue even when customer contracts are already in place.
NextDC’s delay has created uncertainty around the timing of expected income and the deployment of capital across its development programme. The company’s response has been to shelve all new development projects and land acquisitions for the foreseeable future.
It also said it would evaluate capital recycling opportunities, including potential sales of selected development sites. Such transactions could release funds from land holdings and provide additional financial flexibility while the company reassesses its investment priorities.
However, the decision to pause expansion also raises questions about the pace at which NextDC can capture future demand for data center capacity. The company must balance the need to protect its financial position against the risk of losing development opportunities in a market where infrastructure requirements are growing.
The electricity delay also underlines a wider weakness in the economics of data center investment. Customer demand and contracted revenue do not automatically translate into cash flow if power infrastructure, construction schedules or other essential connections are not ready. For investors, the distinction between contracted business and revenue that can actually be recognized on schedule has become necessary.
Goodman Group and Digital Realty have stated in the term sheet that they do not currently intend to make a takeover bid or seek control of NextDC. They have, however, reserved the right to do so if circumstances change.
That qualification leaves open the possibility of a broader transaction in the future, but the current proposal should not be interpreted as a takeover offer. The immediate objective is to acquire a minority stake of up to 9.9%.
The proposed A$9.50 price is considered huge because it offers shareholders a substantial exit premium after months of losses. At the same time, the discount in NextDC’s market valuation following the October announcement has created an entry point for investors willing to accept the operational and financing risks associated with its projects.
The investment would provide Goodman with further exposure to digital infrastructure, an asset class closely linked to the expansion of cloud computing, artificial intelligence and data-intensive services. Digital Realty, which operates data centers, would gain a potential strategic interest in an Australian operator with an established development and customer base.
Their participation also brings attention to the value of NextDC’s existing assets and development sites, even as electricity constraints complicate its immediate growth plans. The offer suggests that the company’s market valuation following the sell-off may not fully capture the longer-term interest in its infrastructure portfolio, although the proposed price alone does not establish the underlying value of those assets.