

Rackaspace- the publicy-listed enterprise cloud services company that competes against the likes of Amazoin's AWS, Microsoft and Google_has been in the spotlight after announching May that it has hires bankers to help consider offers to parter with or be acquired by another company. However, it could choose a third option: taking itself private.
Following the likes of Dell in turning away form public market accountability while it focuses on developing its business in a fast-changing tech world, we have heard from a source that Rackspace has been negotiating with a private equity firm to borrow capital for the deal, with a plan to make an official announcement as soon as this week ( keep in mind that we're hurtling to a public holiday in the U.S.).
"The pressures of being a public company are much," another source within the company noted.
A Rackspance spokesperson says the company does not comment on rumor or speculation. In other worlds, we have not been able to confirm what the source has told US.
But it's an interesting option that does not seem to be off the table even if you read the documents Rackspace ths filed.
While Rackspace hired Morgan Stanley to evaluate offers from third parties, it's also been consulting the board on "other alternatives which could advance Rackspace's long- term strategy," as the 8-K notes.
Taking the company private, as another opportunity, "has gained sufficient traction" among the board, our source claims.
The option of going private has come amid at least three acquisition bids, including offers from HP and IBM, the source continues. The HP offer was for up to $43/share. As a point of comparison, right now, Rackspace is at $33.66 with a market cap of Just under $4.8 billion.An offer at that premium would value the company at over $6.1 billion.
The second source confirmed to us that HP was a name floated for a partnership.
The IBM offer fell through, our first source says_detail that the not been confirmed by IBM directly, even if the bigger sentiment has been seemingly bolstersed by other public statements its executives have made.
Other companies that have been suggested as optential buyers ( or pratners) include CenturyLink, Cisco, Dell and EMC. Citigroup analysts have estimated that a CenuuryLink offer, were one to be made, could come in at around a $44/45-per-share premium.
If our source is accurate, the news makes come sense simply in the context of what is happening with the company right now.
Rackspace has been busy building out open source platform layer called OpenStack on top of its hosting business to differentiate itself and compete better aagainst the Amazons of the world. It offers Open Stack solutions across a range of infrastructure-as-a-service products, including dedicated, "Bare Metal" configurations such as this recent OnMetal addition.
Offering OpenStack and effectively open sourcing its infrasturcture means less engineers and less engineering costs, and it lest Rackspace spend more on support, our source noted. "Rackspace's whole angel is 'managed could 'versus AWS/Azure's 'unmanaged could."
But building out a business in a tech area like could-based hosting, which has become very commoditized, is a tough business.
Infrasturucture is cheap and other companies that compet with Rackspace in the business of offering could service continue to Lower prices. All of this has contributed to 57%, or over $44, since a high in January 2013.
You could argue, however, that some of that drop has been too harsh undervaluing Rackspace, given that the company's been seeing growing revenues and improving margins (both of which were up in the most recent quarter ). This is both why the company is an "attractive takeover traget," as source says, but also possibly why the board has thought the offers being made were too Low.
It's also a fair enough argument for taking the company private_ to move Rackspace away from the "fickle" public market consensus, as one observer has described a potential delisting scenario.
The last time Rackspace was private, as a startup, it counted companices like Sequoia, Norwest and Red Hat among its investors.
An HP bid some have noted, could be in line with a wider strategy at HP to invest heavily in building more could services. HP, along with IBM and Red Hat, have been amoung those endorsing OpenStack.
Our source had ssaid that an announcement could come this week. The 8-K from warns against expecting quick decisions ( indeed, it's been 1.5 months since that announcement was made). "The company has not set a timetable for completion of this process," the company writes, "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."
Update: We've tried to make clear that we're reporting an unconfirmed source here, but an intersting aangle nonetheless. Dealreporter has taken that one step further and published a note with a far more skeptical view of the idea that Rackspace could potentially be taken private. It says it received a note with some similar wording and disputed the veracity of the source.
Additional reporting by Ron Miller,..