Rackspace Shares Jump on Buzz Over Privatization

Investors sent shares of embattled colocation and cloud giant Rackspace up Wednesday on a report that the company is considering taking itself private, following two months of industry chatter that the company is on the sales block.

A post from technology blog TechCrunch reported news of a possible deal to take the company private and cited anonymous and unconfirmed sources. The report said a deal could be announced before the holiday weekend.

Rackspace shares closed up about 6% on Wednesday to a recent market value of $5.10 billion.

Related: Rackspace Channel Partners Bubbling With Speculation About Possible Acquisition

A recent precedent may bode well for the company's channel partners if the TechCrunch report is true, at least one Rackspace partner said.

Lane Campbell, CEO at Chicago-area solution provider Syntress SCDT, compared Rackspace's channel program to that of Dell's program before it went private. Campbell said in an interview with CRN that Syntress is a Rackspace partner because of customer requests for the brand.

"I don't think they're very channel friendly at all," Campbell said of Rackspace. "Other partners are willing to pay four times more and they are willing to give us support. They don't give us support at all. They just want everyone to go direct."

Campbell sees potential for improvement in the Rackspace partner program if it were to go private. That's based on what he said were improvements made in the last year to Dell's program after management executed a leveraged buyout and took the company private.

’It was a night and day difference,’ Campbell said. ’As Dell moved away from a publicly-traded mentality, they focused more on building relationships. Privatization might be good for getting their partner system more friendly. I don’t see it happening as long as they’re publicly traded."

Rumors about potential suitors have swirled since Rackspace disclosed in a filing with the Securities and Exchange Commission that it hired Morgan Stanley to consider a strategic partnership, one essentially forced upon the company by price pressure from competitors in the public cloud business.

The TechCrunch report suggests an intriguing third option for the company that would take Rackspace private.

TechCrunch later reiterated that reporting for its story was based on an unconfirmed source, but that it offers ’an interesting angle nonetheless.’ Dealreporter claimed it received a note with similar wording to the TechCrunch story, but was more skeptical and held the story.

NEXT: Rackspace Rumors Take Channel Partners On Wild Ride

The endless rumors and uncorroborated reports on Rackspace have been both exciting and unnerving for some of the company's channel partners.

Jeff Chandler, president of Rackspace partner American Technology Services, has been following the news closely.

’Rackspace has to do some soul-searching to figure out how they can compete with AWS and Microsoft Azure over the long haul, or else find some niche markets where they have a strong competitive edge," he said. "Right now, they’re stuck.’

Going private might make sense, Chandler said.

’But sooner or later they have to sell to somebody to remain viable when providing the same services that big gorillas like Amazon or Microsoft or IBM can provide," he said. "Either that, or they start acquiring other companies themselves to broaden their base of business,’ he said.

TechCrunch reported Rackspace received at least three bids, including one from Hewlett-Packard, IBM and an unnamed suitor. Hewlett-Packard offered up to $43 per share, valuing the company at more than $6 billion, according to TechCrunch.

Talks on an IBM deal have fallen by the wayside, the blog reported.

Chandler said, while HP is an appealing buyer, he prefers to see data services provider CenturyLink take over Rackspace because he thinks they ’understand how to sell IaaS and PaaS better than HP at this point in time.’

Chandler also told CRN that EMC, another name that has come up in recent weeks, seems like a bad fit because of Rackspace’s technical decision to heavily adopt OpenStack.

Rackspace operates the largest production deployment of OpenStack, making it a strategic asset to other companies within the OpenStack ecosystem such as AT&T, IBM, EMC, HP and VMWare.

PUBLISHED JULY 2, 2014