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Rackspace to go private in $4.3bn deal

Move will allow greater flexibility to invest resources in additional multi-cloud capabilities, says CEO

Rackspace is to go private in a $4.3bn deal with Apollo Global Management.

Shareholders will get $32 a share in cash from the private equity firm. The deal, which is expected to complete in Q4, will allow Rackspace to focus its cloud customer service business.

“Rackspace faces a big opportunity as the early leader in the fast-growing managed cloud services industry.” said Rackspace CEO Taylor Rhodes in a blog post.

“To seize that opportunity, we want greater flexibility to invest our resources in additional multi-cloud capabilities that we expect to result in long-term growth. This transformation is likely to impact our revenue and margins for multiple quarters.

“After considering these factors, the board concluded that it can best advance shareholder value through this transaction with Apollo, which will result in Rackspace becoming a private company.”

Despite being one of the first cloud providers on the market, Rackspace has struggled to compete with the likes of Amazon Web Services and Microsoft Azure.

The move will allow the company to rebuild its strategy, focusing on the support of public cloud services, rather than simply trying to compete with them.

In a filing made to the SEC on Friday, Rackspace addressed a number of issues that might arise from going private.  In terms of possible layoffs, the document stated: "The candid answer is that we do not know just yet. What we do know is that Apollo believes in our opportunity and our strategy. We believe we will create more opportunities for [employees] over time."

Kate Hanaghan of TechMarketView said that she believed it was the right move for Rackspace.

“For some time we have described the ‘middle ground’ that has become Rackspace’s home - nestled between its hyperscale neighbours on the one hand and the established IT services providers on the other,” Hanaghan said. “Rackspace is being squeezed as it attempts to shift away from its legacy business in hosting.

“Out of the limelight, it will need to make some serious decisions about how it improves its growth and position – notably as a managed cloud player providing the crucial wrap-around services for cloud.”

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