8-KOther EventsExhibits & Filings

DIGITAL REALTY TRUST, INC. 8-K Report, Corporate Update (Jul 10, 2017)

Filed July 10, 2017For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

This 8-K filing from Digital Realty Trust, Inc. (DLR) on July 10, 2017, primarily details the ongoing merger agreement with DuPont Fabros Technology, Inc. (DFT). The report outlines the exchange ratio where DFT shareholders will receive 0.545 shares of DLR common stock for each DFT share. It emphasizes significant risks associated with the merger, including that the exchange ratio is fixed and will not be adjusted for market price fluctuations of either company's stock, meaning the value of the consideration DFT shareholders receive could change significantly between the agreement date and closing. Furthermore, the filing highlights the dilutive effect on existing DLR shareholders, who are expected to own approximately 77% of the combined entity post-merger, with former DFT security holders owning approximately 23%. The report also details the numerous conditions for the merger's completion, the potential for termination fees (up to $300 million for DLR, $150 million for DFT), and the financial and operational risks associated with the integration of the two companies. Investors are cautioned about potential disruptions, integration challenges, increased indebtedness, and the uncertainty of realizing anticipated synergies.

Key Highlights

  • 1Digital Realty Trust, Inc. (DLR) is proceeding with its merger agreement with DuPont Fabros Technology, Inc. (DFT), announced on June 8, 2017.
  • 2The transaction structure involves a fixed exchange ratio: DFT shareholders will receive 0.545 shares of DLR common stock per DFT share.
  • 3The exchange ratio is not subject to adjustment based on changes in the market price of either DLR or DFT stock prior to closing.
  • 4Upon completion, DLR shareholders are projected to own approximately 77% of the combined company, with former DFT security holders owning approximately 23%.
  • 5Numerous conditions must be met for the merger to close, including shareholder approvals and regulatory requirements.
  • 6Significant risks are detailed, including potential termination fees ($300M for DLR, $150M for DFT), integration challenges, increased combined indebtedness (pro forma $7.8 billion), and potential business disruptions.
  • 7The filing includes DLR's pro forma financial statements and DFT's historical financial statements to provide context for the potential combined entity.

Frequently Asked Questions

Under the merger agreement, each outstanding share of DFT common stock will be converted into the right to receive 0.545 shares of DLR common stock. Cash will be paid in lieu of any fractional shares.

No, the exchange ratio of 0.545 shares of DLR common stock for each DFT share is fixed and will not be adjusted for any changes in the market prices of either DLR's or DFT's common stock prior to the completion of the mergers.

Key financial risks include increased combined indebtedness, with pro forma consolidated indebtedness projected to be approximately $7.8 billion as of March 31, 2017. This increased leverage could limit the combined company's financial flexibility, ability to obtain future financing, and its vulnerability to adverse economic conditions. Additionally, there are substantial integration costs that could exceed anticipated savings in the near term.

If the merger is not completed, both DLR and DFT will have incurred significant transaction costs (legal, accounting, advisory fees) that could adversely affect their financial condition. Furthermore, either party could be required to pay a termination fee: DLR might pay up to $300 million to DFT, and DFT might pay up to $150 million to DLR, under certain circumstances, which would negatively impact the paying party's financial results.