Rackspace reverses course, won’t seek buyer

Sep 17, 2014
Austin American Statesman

Back in May, San Antonio-based Web hosting company Rackspace Hosting said it was exploring a number of strategic alternatives, including a possible sale. Potential buyers had approached the company hoping to strike a deal, and company executives said they wanted to conduct a review of the company’s options


On Tuesday, Rackspace said the review was over and there would be no deal


“After a comprehensive review, the board decided to terminate (merger and acquisition) discussions,” the company said in a written statement


Rackspace’s stock took a hit following the news that the company was no longer seeking a buyer. Shares fell more than 16 percent in after-hours trading Tuesday night


Rackspace has a significant presence in Austin, with more than 570 employees here. The company said in July it plans to lease space in Austin Community College’s Highland campus, formerly the Highland Mall site. Its first operation in Austin was a small office with eight salespeople that opened in 2006, but the company quickly began to hire tech support and programmers in Austin, as well


Founded in 1998, Rackspace operates nine data centers on four continents and has more than 5,000 employees worldwide. The company’s revenue topped $1.5 billion in 2013


Rackspace officials said Tuesday that the merger and acquisition talk was tabled because sales had improved and that Rackspace’s plan to grow as a stand-alone company was succeeding. Revenues grew by $20 million in a quarter for the first time, the company said, and sales were growing faster than at any time in the past two years


The company also said it considered a share buyback program as part of the strategic review it conducted with Morgan Stanley, but opted against it for now. In addition, Rackspace named its president, Taylor Rhodes, as chief executive


“We ran a thorough process under the direction of our board of directors, independent advisers and a strategic transaction committee of the board,” Graham Weston, Rackspace’s co-founder and chairman, said in a written statement


“In this process, we talked to a diverse group of interested parties and entertained different proposals. None of these proposals were deemed to have as much value as the expected value of our standalone plan.”



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