VMware to buy $20 million stake in Terremark

VMware is buying a 5 percent stake in Terremark, a close partner that provides collocation and managed infrastructure services using VMware's virtualization software, Terremark said on Tuesday.

VMware has agreed to buy 4 million Terremark shares at US$5 per share, a $0.20 premium on Terremark's closing share price Tuesday. The investment is valued at $20 million, the company said.

"VMware and Terremark have worked together for years, with VMware's software being a key component of our suite of virtualized offerings," said Manuel Medina, Terremark's chairman and CEO, in a conference call Tuesday.

"We look forward to continuing our long relationship with VMware as we develop reliable and scalable virtualization solutions for enterprise and federal customers," he said.

Terremark rents data-center capacity to third-party organizations. Customers can manage their own hardware at its facilities or sign up for managed hosting services using Terremark's equipment. Terremark uses VMware's virtualization software to run those managed services.

The companies are already close partners, with VMware naming Terremark as its "service provider of the year" for 2009. Their relationship appears set to get closer.

VMware is developing software that allows companies to move workloads between their own data centers and those of so-called cloud computing providers. It needs partnerships with companies such as Terremark to make that possible. Terremark's rivals in the space include Savvis and SunGard.

VMware officials didn't respond to requests for comment about the investment. VMware is majority-owned by EMC.

Terremark also announced that it swung from a loss to a profit for its fourth quarter ended March 31. Net income was $4.1 million, compared to a loss of $2.5 million in the same quarter a year earlier. Revenue increased 5 percent to $68.9 million, from $56.8 million a year ago.

The company maintained its revenue forecast for the coming year, of $290 million to $300 million.

The announcements sent Terremark's shares 7 percent higher in after-hours trading Tuesday, to $5.05. Shares in VMware climbed 2.7 percent during normal trading, to $29.26, and stayed flat after hours.