CyrusOne Inc (CONE.O), a U.S. data center operator with a market capitalization of about $9 billion, is exploring strategic alternatives that include a potential sale of the company, according to people familiar with the matter. The real estate investment trust is working with investment bank Morgan Stanley (MS.N) to review its options after coming under renewed pressure from some investors to address its sluggish financial performance and heavy management turnover, the sources said. The company’s shares are off modestly since January, compared with a 16% rise in the S&P 500 Index. There is no certainty that CyrusOne’s current deliberations will result in any deal, the sources said, requesting anonymity because the matter is confidential.
A spokesperson for CyrusOne did not immediately respond to a request for comment. A Morgan Stanley spokesperson declined to comment. The company’s stock price jumped as much as 7% on the news on a day the broader market was down sharply. Based in Dallas, CyrusOne operates more than 50 data centers globally, seeking to capitalize on the cloud computing trend of companies outsourcing some of their data management. CyrusOne does not operate any major internet exchanges and with growth, forecast to slow some, data centers like CyrusOne’s could become more commoditized, according to a note from Morningstar.
CyrusOne’s total shareholder return has averaged 26.2% in the last three years, underperforming each of its data center peers and lagging the broader S&P 500 Index, which returned 61.1%. Rival QTS Realty Trust for example, which was sold to private equity firm Blackstone Inc (BX.N) for $10 billion this year, returned 98% over the same period. Morgan Stanley, along with Jefferies LLC, acted as financial advisers for QTS. Infrastructure and real estate funds are expressing interest in data center assets that can be valued more highly in the private market than the public market, analysts said. Former CEO Gary Wojtaszek said on an earnings call in late 2019 that no sale was being considered. Wojtaszek left in early 2020 and was replaced by Tesh Durvasula, who was named interim CEO until Bruce Duncan was appointed to the position in June 2020.
In July 2021, the company said that Duncan was out and that David Ferdman had been tapped as interim CEO. Ferdman co-founded the company and served as CEO from 2000 until 2011. Activist hedge fund Jana Partners owned a 1.4% stake in CyrusOne at the end of the second quarter, according to shareholder data. Founded by Barry Rosenstein, Jana has a history of quietly pushing for change behind the scenes and some of its portfolio companies, including Whole Foods Market, Pinnacle Foods, and Perspecta Inc were acquired. The firm did not respond to a request for comment.