Cloud

Rackspace insider: Reports we'll go private are 'bulls***'

Rackspace UK David Staedtler Flickr

Actually, Rackspace might not be going private.

Financial analysts are questioning a recent report that cloud and hosting provider Rackspace could go private with the help of a private-equity firm. Also, sources in the know scoffed at the rumor.

Rackspace itself has said that the company is open to moving away from its current status as an independent, publicly traded business. And executives at companies such as IBM and Cisco have said they aren’t too interested in buying Rackspace.

But the idea that Rackspace would walk away from negotiations and instead take money from an unnamed private-equity firm to go private — as TechCrunch reported last night — is hard to believe from a cash-flow and balance-sheet perspective. And it wouldn’t necessarily solve the long-term problems facing the company — particularly the competition it faces from fast-moving cloud providers like Amazon Web Services and growing hosting companies like DigitalOcean.

“An M&A transaction involving a financial buyer strikes us as unlikely,” Jonathan Atkin, an analyst at RBC Capital Markets, wrote in an email to VentureBeat. Atkin’s firm has previously pointed out that “a potential acquirer with existing enterprise reach could drive potential top-line synergies.”

One source at the company called the go-private report “bullshit” in a conversation with VentureBeat. (An official Rackspace spokesperson declined to comment on rumors or speculation.)

Meanwhile, the anonymous sources for the TechCrunch story might have even made the assertions in an effort to stir up more acquisition interest or motivate potential buyers to bid more money for the company.

“We think it is more likely that the company is trying to put pressure on potential buyers — particularly after an article was floated late last Friday stating that bidders for [Rackspace] was limited,” Wells Fargo senior analyst Gray Powell wrote in an analyst note today.

Making matters more complicated, the article did not cite a specific private-equity firm. Even if Rackspace was considering a private run like fellow Texas technology companies BMC and Dell, Rackspace might not have a company that would cooperate and lend it the necessary cash.

In any case, Rackspace investors seem to have enjoyed the report. The stock was up more than 9 percent this morning. It closed at $35.88, with a 6 percent gain for the day.

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