CenturyLink looks to acquire Rackspace for more than $5billion
Mon 8 Sep 2014
CenturyLink, the leading landline phone and communications service provider, is reportedly seeking to acquire Rackspace Hosting to expand its offering in the cloud market.
Last month Rackspace announced that it is currently reviewing strategy internally, following reports of a dwindling customer base, the resignation of its CEO Lanham Napier, as well as rumours that it is busy selling itself around.
One source however said a deal may not be reached as the company was valued at $5.33bn on the stock market at the end of last week, and that figure will pose acquisition difficulties even for CenturyLink.
The deal would bring further cloud services to CenturyLink’s communications portfolio, helping with competition from the likes of AWS, Google and Microsoft.
“Strategically, it would be a good acquisition,” said Donna Jaegers, analyst at DA Davidson & Co. Although she did admit that “the price would be a little rich” based on Rackspace’s market value.
Reports suggest that there is a 50% chance of the deal going ahead; a joint venture or payment in stock is a more likely scenario explained Jaegers. She continued that CenturyLink would not want to incur a debt downgrade which would inevitably come with funding such a deal.
This would be CenturyLink’s second cloud acquisition in the last year, following the purchase of Tier 3 Inc. in November.
Rackspace has refused to provide any comment on the acquisition negotiations.
