Shares of Digital Island skyrocketed Monday as the Internet technology company said it would acquire Internet content delivery service Sandpiper Networks for $630 million in stock.
Investors embraced the announcement, sending Digital’s stock up $15.69 to close at $38.69, a gain of 68%, creating a $2 billion merger.
San Francisco-based Digital said its merger with Thousand Oaks-based Sandpiper will form a company — operating under the Digital Island banner — that offers services to businesses setting up global e-commerce transactions or distributing content on the ‘Net.
$20 billion a year
With more media companies venturing into e-commerce to sell everything from books to videos, Digital Island is expected to control what’s anticipated to be a $20 billion a year industry.
The new company will be based in San Francisco and will combine the key property of both companies, including Digital’s TraceWare software and Sandpiper’s Footprint content delivery technologies, Digital said.
Ruann Ernst, prexy of Digital Island will become CEO of the new combined company, while Leo Spiegel, CEO of Sandpiper, will become prexy.
Entertainment outfits E! Online, CNBC, Warner Bros. Online, Webradio.com, Wirebreak.com as well as online broker E*Trade Group Inc. and charge card service MasterCard use the companies’ services.
Sandpiper claims its infrastructure can bypass Internet traffic bottlenecks. Together, the companies say, they can improve speed and reliability of data sent over the Internet for large-scale global e-commerce businesses.
“This allows Digital Island to offer improved quality of service and strengthens its offerings in a sector where there’s not much competition,” said James Linnehan of Thomas Weisel Partners LLC.
The companies did not disclose financial details about privately held Sandpiper, but its sales are believed to be lower than the $3.7 million Digital Island reported in its last quarter.
“Sandpiper is about 18 months behind Digital Island on the revenue ramp,” Ernst said.
The merger is subject to approval by shareholders of both parties and standard regulatory approvals but should be completed before the end of the year.