Rackspace Investigates Possible Sale

Despite strong profits, US hosting firm Rackspace has called in Morgan Stanley to look at options, including putting the cloud provider up for sale, in response to the cloud price war between Amazon, Google and Microsoft. Shares in the company went up in response by as much as 30 percent.

Although Rackspace made $25 million in the last quarter, its revenues are slowing and the market for cloud services is full of big firms with deep pockets who are cutting prices at a speed which threatens Rackspace’s business model.

The company has engaged the investment bank Morgan Stanley for an open-ended investigation of possible partnerships or acquisitions, but commentators are already listing possible buyers, including IBM, Cisco and HP, all of whom are building a cloud services base.

Evaluating the options

The company said  the bank has been called in to look at existing offers , with no  definite goal in mind: “In recent months, Rackspace has been approached by multiple parties who have expressed interest in exploring a strategic relationship with Rackspace, ranging from partnership to acquisition,” its statement said. “Our board decided to hire Morgan Stanley to evaluate the inbound strategic proposals and to explore other alternatives which could advance Rackspace’s long-term strategy.

“No decision has been made and there can be no assurance that the Board’s review process will result in any partnership or transaction being entered into or consummated.”

Rackspace’s strategy has been to promote the open source OpenStack platform, which it helped kick off along with NASA, back in 2010. However, providers such as Amazon Web Services, Google and Microsoft have been cutting prices rapidly, while hardware vendors such as Cisco, HP,IBM and Oracle are intent on getting into cloud services.

IBM recently bought SoftLayer and invested $1 billion in cloud data centre services in January.  Hewlett-Packard made a similar investment earlier this month.

Since making its filing with the Securities and Exchange Commission, Rackspace has declined invitations to comment, telling TechWeek: “The company has not set a timetable for completion of this process and does not intend to discuss or disclose further developments with respect to this process unless and until the Board approves a specific partnership or transaction.

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