Rackspace, Suitors Calling, Agrees to Listen

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Rackspace occupies the former Windsor Park Mall. The company has transformed the dead mall into a modern workplace that includes sectioned off conference rooms, escalators, and is home to the old gondolas from Brackenridge Park. Photo by Iris Dimmick.

Rackspace occupies the former Windsor Park Mall. The company has transformed the dead mall into a modern workplace that includes sectioned off conference rooms, escalators, and is home to the old gondolas from Brackenridge Park. Photo by Iris Dimmick.

Somebody out there in the tech world really “likes” Rackspace Hosting and is interested in pursuing a more serious relationship. Actually, more than one suitor is eyeing the managed cloud computing company best known for its Fanatical Support model of customer service.

That might come as a surprise to some market watchers, who have watched Rackspace shares punished severely by investors focused on the big cloud players, especially Amazon, Microsoft and Google, locked in a spiraling price war to offer stripped-down cloud services that don’t come with much service.

Not everyone out there, however, is selling short. One or more companies in the cloud world see long-term value in Rackspace, a company hyper-focused on customers who want customized hybrid cloud packages that include friendly, knowledgable people answering service calls from their San Antonio desks rather than automated call service centers in East Asia.

Rackspace has filed notice with the Securities and Exchange Commission that various companies have initiated contact and expressed interest in a strategic partnership or acquisition of Rackspace. Rackspace executives, who are bound by the process not to publicly comment, have hired Morgan Stanley to formally explore these expressions of interest and recommend a course of action. Company executives could decide to move forward and hold talks with a potential partner or buyer, or they could decide to maintain the status quo.

“Our board decided to hire Morgan Stanley to evaluate the inbound strategic proposals, and to explore any other alternatives which could advance Rackspace’s long-term strategy,” the company said in the statement.

Read the Wall Street Journal story here.

Rackspace beat Wall Street’s project earnings predictions for the first quarter, but the pressure to compete in the face of crazy price cuts remains.

“Our business has always been about more than just renting out access to infrastructure,” Rackspace Chairman, CEO and Co-Founder Graham Weston said on the May 12 earnings call with analysts, as reported by Bloomberg News. “We add value by managing that infrastructure, as well as specializing in the complex tools and applications that run on top.”

The famous Rackspace slide at The Castle, the hosting company's headquarters. Photo by Iris Dimmick.

The famous Rackspace slide at The Castle, the hosting company’s headquarters. Photo by Iris Dimmick.

Rackspace, founded in the late ’90s and publicly traded since 2008, serves as the cornerstone to San Antonio’s growing tech sector. The Castle, its much-publicized headquarters in the former Windsor Park Mall located in Windcrest off I-35, is home to more than 3,000 employees.

Hundreds more work at the company’s Austin offices. The company maintains significant operations in London, Hong Kong and elsewhere overseas. Its Latin America operations have realized significant growth in the last year.

Weston also serves as the driving force and financial backer of the city’s fast-growing tech incubator community, centered around Geekdom, the co-working and collaborative workspace located in the downtown Rand Building. Weston also has been a stalwart defender of keeping Rackspace in his hometown, passing on offers in past years to move the company to Austin or Raleigh, North Carolina.

Lew Moorman, former Rackspace president.

Lew Moorman, former Rackspace president.

Significant executive changes have occurred at Rackspace over the last year amid the growing price pressures and lowered profit and growth forecasts. Longtime Rackspace president and board trustee Lew Moorman stepped down as president last summer to spend time with his wife who has health issues.

Then, in February of this year, 14-year veteran and CEO Lanham Napier also stepped down. His unexpected departure pushed Rackspace shares downward and stirred speculation that Napier and the board disagreed on how to address the cloud market price war and the company’s resulting profit decline.

[Read more: Rackspace CEO Lanham Napier Retires]

Rackspace President Taylor Rhodes

Courtesy / Taylor Rhodes

Rackspace President Taylor Rhodes

Weston assumed the CEO role after Napier’s resignation, and Taylor Rhodes, a veteran Rackspace executive highly respected for his work internationally and in customer sales and marketing, assumed the presidency.

Rackspace has traded as high as $54.20 a share over the past 52-week period, and as low as $26.18. Shares officially closed at $30.68 on Thursday, a 7 percent gain for the day.  Shares moved even higher in after-market trading, indicating investors are pleased Rackspace has hired Morgan Stanley to explore all options.

For San Antonians who see Rackspace as a jobs engine, community anchor and culture changer, rather than a mere portfolio investment, only time will tell if the company and San Antonio will continue to grow together.

*Featured/top image: Rackspace occupies the former Windsor Park Mall. The company has transformed the dead mall into a modern workplace that includes sectioned off conference rooms, escalators, and is home to the old gondolas from Brackenridge Park. Photo by Iris Dimmick.

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2 thoughts on “Rackspace, Suitors Calling, Agrees to Listen

  1. If an outside investor or company buys significant shares or the company outright, I wonder how that will effect the ability to keep the headquarters in SA?

    Rackspace has been a great thing in SA, but it has also been nurtured to be here.

    I wish them the best of luck.

  2. As much as I support Rackspace for some reason I feel the need to say the end is nigh. Alas, I shall return to the brain trust and think of a way to avert disaster.

    Seriously though, we need Rackspace because San Antonio will never be the same without it. It is one of the great San Antonio startups.

    What about this: Make Rackspace smaller. Reduce the workforce by half, outsource fanatical support, increase marketing campaigns targeted to developers and programmers, change the website layout to something much simpler, change the pricing structure to rival competitors like Amazon and ProfitBricks, and, and, get a new CEO as soon as possible.

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