Japan's NTT pays US$875m for two US cloud computing firms

TOKYO - NTT Communications said yesterday that it would pay a combined US$875 million for two US-based cloud computing firms, marking the latest major overseas acquisition by a Japanese firm.

The telecoms giant said that it had agreed to buy Virtela for US$525 million, while it would shell out US$350 million for an 80 per cent stake in RagingWire as it looks to boost its ability to supply online access to software and data storage for big global clients.

The deals come as NTT looks to counter a slowdown in its mainstay long-distance telecom business. "The acquisition (of RagingWire) will more than double NTT's data centre space in the US, which will enable the company to respond to high demand for data centre services in North America," it said in a statement.

It added that the deal was "critical to increasing our overall capacity".

The global cloud services market for corporate users is expected to reach US$31.9 billion in 2017, a 70 per cent jump from last year.

NTT owns undersea cables and other lines between Europe and the US, but to meet the needs of corporate clients seeking global networks that link offices and plants in different markets, it must obtain line access in each nation from individual providers.

However, Virtela has data networks connecting companies in about 190 countries through partnerships with local data communications providers.

By acquiring the company, NTT would gain instant access to data communication networks that straddle national borders. That would make it easier to set up communication infrastructure for customers scattered worldwide, and cut costs linked to dealing with individual providers.

The deal announced yesterday is the latest in a string of acquisitions by Japanese firms, including mobile carrier SoftBank's US$21.6 billion takeover of US-based SprintNextel earlier this year.

Last month, drinks giant Suntory said that it would buy the top-selling Lucozade and Ribena brands from British drugs firm GlaxoSmithKline (GSK) for US$2.1 billion, while bathroom giant Lixil Group agreed to scoop up Germany's Grohe in a US$4.1 billion deal.

The moves are aimed at expanding beyond Japan's borders, where firms are wrestling with unfavourable demographics as the population rapidly ages while the birth rate falls.

Despite a sharp decline in the yen since the start of the year, the Japanese currency's historically high levels in recent years made firms' overseas acquisitions relatively cheaper.