OpenStack pioneer Rackspace is in the hot seat

by tech on June 30, 2014

Last month, when Rackspace hired Morgan Stanley in May to explore its options – including a possible sale to another company — it no doubt hoped to drum up a lot of interest. But that, apparently, has not happened, and on Friday, the company’s stock fell  7.30 percent and was down 9.1 percent for the week. I’m betting that’s not the sort of interest it was seeking.

So this week, many eyes will be focused on the San Antonio-based cloud and hosting provider — and as of posting time Monday s of post time, Rackspace stock was up1.0 percent to $33.97 per share.) . Friday’s drop off appeared to be spurred by a Deal Reporter story  that quoted an unnamed banker who had “heard”  that IBM had looked at Rackspace and passed. Indeed, last week IBM’s SoftLayer cloud chief, Lance Crosby told VentureBeat that a Rackspace deal would “not be exciting” to IBM. (Note: IBM bought SoftLayer a year ago for $2 billion, after having already evaluated Rackspace, which IBM sources told me it deemed too expensive.)

Depending on how you read the cloud market, all is not lost however. Two major U.S. players — Hewlett-Packard and CenturyLink — could still be in the running for Rackspace, according to RBC Capital Managing Director Jonathan Atkin, who follows the company.

HP CEO Meg Whitman recently said she would consider deals in the $4 billion to $6 billion range and CenturyLink, despite making two cloud-related acquisitions — Savvis and Tier 3 in the past few years  – also indicated it could make acquisitions in strategic areas, he said.

HP, which fields its own OpenStack cloud technology might find Rackspace, and its OpenStack know-how, of interest.  A CenturyLink spokeswoman declined comment. HP could not be reached for comment.

And then there are foreign telcos that might want to bust into the U.S. business-to-business cloud market — NTT, which bought Verio years ago and RagingWire more recently, is one example, Atkin cited.

Valuation is tricky, however. Rackspace’s market cap was $4.8 billion at close of business on Friday. If you view the landscape as one where Amazon, Google and Microsoft have sucked the air out of the room on the public cloud side, and where most of the legacy IT players — VMware, HP, IBM, Red Hat et al — have already made their cloud play, Rackspace might look pricey and superfluous. But if those same companies see an opportunity for customer and technology acquisition, Rackspace may look tempting — depending on price of course.

In any case, Rackspace is in the spotlight for good or ill. It lost two of its top OpenStack evangelists to Metacloud two weeks ago. When Rackspace CEO Lanham Napier retired in February, company Chairman Graham Weston stepped in as interim CEO and said the company was in no hurry to name a new permanent CEO. Taylor Rhodes was named president in January.

Reached for comment a Rackspace spokeswoman said the company believes it has a “solid strategic plan going forward as an independent company and our intention is to execute on it aggressively. We will not comment on or speculate about the possibility of an acquisition.”

 

 

 

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