UK-based data centre provider, Telecity has agreed to buy New York listed competitor Interxion in a deal worth £1.4bn.

In an all share deal 55% of Interxion has been valued at $2.2bn.

Under the terms of the deal Telecity shareholders will hold 55% of the combined company which will be listed in London, Interxion shareholders will keep the rest.

John Hughes, chairman of Telecity, said: "The aim of the acquisition was to cut costs through reduced capital and operational expenditure across the joint group, as well as to expand the business by cross-selling products to the different clients of each company."

Reactions to the merger in data centre market

Eric Schwartz, president of EMEA at rival Equinix, said in a statement: "There’s no question that positive secular trends, including cloud, big data and mobile, are driving significant data center demand around the world so this announcement is in line with what we’re seeing in the market. And, as enterprises operate increasingly interconnected, on-demand business models it’s imperative they have a global data center strategy."

Adam Levine, chief commercial officer at European data centre owner Data4 Group, said: "There will be significant synergies in the back office. It gives the merged company a wider geographical base from which to compete with Equinix and a chance to push price levels back up especially in markets where they are the predominant players."

It is expected that by combining Telecity and Interxion it will add £600 million worth of added value, however, restricting costs are expected to hit profits.

Telecity said in a statement: "The additional scale and scope of the combined operations will give customers an expanded product set, more robust connectivity choices, better landing points for access to European consumers and expanded gateways to new markets in Africa, Asia and Eastern Europe."

Interxion Chief Executive David Ruberg would be appointed CEO of the combined group for a period of 12 months following completion of the transaction. John Hughes is to continue as Executive Chairman of Telecity until completion of the proposed transaction, after which he would become chairman of the combined group.

Telecity said its revenue in the year ended Dec. 31, 2014 rose 7.1% to GBP348.7 million. Earnings before interest, taxes, depreciation and amortization on an adjusted basis rose 6.8% to GBP163.7 million.

The merger is expected to close in the second half of 2015. Telecity shares rose 16%.