Rackspace CEO’s comments fuel speculation of another sale

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Rackspace Technology CEO Kevin Jones has sparked speculation that the flagship San Antonio tech company may be up for sale again.

In a call with analysts on Tuesday, Jones said that after a thorough review of the cloud company and “interest in one of our businesses, we have concluded that a sum of the valuation Rackspace Technology parts could be greater than our current enterprise value.. … We are evaluating alternatives and strategic options.

He said the company’s value was partly driven by the “attractive growth profile of our public cloud offerings,” referring to Rackspace’s services that help midsize businesses migrate and manage services on platforms such as Amazon Web Services, Microsoft Azure and Google Cloud. .

At a minimum, Rackspace is considering selling at least part of its business. But media reports in Barrons and somewhere else said Rackspace intended to go private again.

Asked by the San Antonio Report for additional information, a Rackspace spokeswoman pointed to a press release that largely repeated Jones’ quote.

If Rackspace were to be purchased, it wouldn’t be the first time. Rackspace sold in 2016 for $4.3 billion to Apollo Global Management, which took the company private before re-entering the public market in 2020. The private equity firm continues to own 65.1% of Rackspace shares .

Rackspace employs between 6,000 and 7,000 people worldwide, with a significant portion at its headquarters in Windcrest.

Holger Mueller, principal analyst at Silicon Valley-based Constellation Research, said he interpreted Jones’ remarks as a “sell signal” and that the company would likely sell the company’s on-premises servers and cloud services separately. business. He said that while the company was becoming more profitable, he felt the on-premises server side had been held too long and growth on its cloud service side had underperformed the market.

Asked about buyer interest on Tuesday, Jones said details could not be provided “due to the ongoing nature of our conversations, both internally and externally.”

Rumors of intent to sell have surfaced several times since Rackspace went public for the second time in 2020.

Shortly after Rackspace’s NASDAQ debut, Reuters cited unnamed sources in a report that Amazon Web Services was looking to take a stake in the company. No such purchase materialized.

Then last year, the company filed a report with the U.S. Securities and Exchange Commission that outlined severance packages for executives like Jones should it take over Rackspace.

After taking Rackspace apart, Apollo accelerated the company’s transformation from a competitor to Amazon and Microsoft’s clouds into an ally. Rackspace, founded in 1998, originally sold web hosting from its on-premises servers, stored on racks (hence the name). It still does some of it, especially for small businesses. In the early 2010s, Rackspace entered the cloud business but could not compete as Silicon Valley giants squeezed this market. Rackspace has pivoted to offer a high-end service that has helped midsize businesses utilize these giants’ clouds.

During Tuesday’s call, Jones said Rackspace was considering a reorganization that would formally separate the two “very different” parts of the business.

That would “unlock value,” JP Morgan analyst Tien-tsin Huang wrote in his first-quarter earnings report for Rackspace. Divided effectively, the white glove service as a business would have high growth, low capital costs and low margins, he wrote. Legacy hosting service as a separate business would have low growth, high capital costs and high margins.

Jones said more details on Rackspace’s strategy would be shared in September.

For the first quarter, Rackspace posted a net loss of $39 million on revenue of $774.5 million, marking the 10th consecutive quarter of revenue growth.

Rackspace’s stock closed at $8.17 on Wednesday, after falling steadily from its peak of $26.43 in April last year.

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