Rackspace may take itself private: TechCrunch

By Supantha Mukherjee (Reuters) - Cloud service provider Rackspace Hosting Inc is considering taking itself private and is in talks with a private equity firm to fund the deal, technology blog TechCrunch reported on Wednesday, citing a source. Rackspace, which put itself on the block earlier this year, may make an announcement by the end of this week, TechCrunch reported. Rackspace's shares rose as much as 8.5 percent to $36.62 on Wednesday, valuing the company at about $5.2 billion. Wells Fargo Securities analyst Gray Powell said Rackspace could seriously be considering a move to go private, a move supported by the strength of its balance sheet. "However, we think it is more likely that the company is trying to put pressure on potential buyers," Powell wrote in a note to clients. Rackspace has received at least three acquisition bids, including those from Hewlett-Packard Co and IBM, the tech blog reported, citing a source within the company. The Hewlett-Packard bid was for up to $43 per share, the tech blog reported. That offer values Rackspace at more than $6 billion. Rackspace spokesman Brandon Brunson said the company does not comment on rumors and speculation. Rackspace leases server space and helps corporations store and access data in the cloud. The company said in a regulatory filing in May that it had been approached by multiple parties and had hired Morgan Stanley to help it in the process. Cowen and Co analysts, in a note dated June 30, said there was a small chance of a take-private transaction, adding that potential buyers could also include telecom provider CenturyLink Inc. Rackspace has faced stiff competition from newer startups as well as established players in the cloud computing business, such as Amazon.com Inc and Google Inc, which have slashed prices recently. While Amazon and Google do not disclose the number of servers they operate, analysts have estimated that their server count is much higher than Rackspace's 106,000. "Given the competitive uncertainties in cloud and hosting, it would certainly be a bold move by management and financial sponsors to take the company private," RBC Capital Markets analyst Jonathan Atkin told Reuters. Concerns among investors about Rackspace's ability to compete with its larger rivals have pushed down its shares to mid-thirties from a high of $81 last year. It touched four-year low of $26.18 in early May. The stock was up 5.6 percent at $35.66 Wednesday morning on the New York Stock Exchange. (Additional reporting by Ankush Sharma and Lehar Maan in Bangalore; Editing by Saumyadeb Chakrabarty)