Rackspace ends formal evaluation of M&A transactions

As previously disclosed in a Form 8-K filed with the Securities and Exchange Commission on May 15, Rackspace had been approached by multiple parties who expressed interest in exploring a strategic relationship, ranging from partnership to acquisition. The board retained Morgan Stanley and Wilson Sonsini Goodrich & Rosati to facilitate a comprehensive review to maximise value for shareholders, customers, and employees. After a comprehensive review, the board decided to terminate M&A discussions. Based on Rackspace’s reaccelerated revenue growth and its potential trajectory for the coming year, the board concluded the company is best positioned to maximise shareholder value by executing its strategy as the #1 managed cloud company.

"We ran a thorough process under the direction of our board of directors, independent advisors, and a Strategic Transaction Committee of the Board," said Graham Weston, Rackspace co-founder and chairman. “In this process we talked to a diverse group of interested parties and entertained different proposals. None of these proposals were deemed to have as much value as the expected value of our standalone plan. We concluded that the company is best positioned to drive value for shareholders, customers and Rackers through the continued execution of its strategic plan to capitalise on the growing market opportunity for managed cloud services.”

“The board also considered a share repurchase program and determined that, based on the company’s significant opportunities, it is prudent to maintain flexibility at this time to ensure that the appropriate investments can be made to drive our strategy forward. We will continue to evaluate the benefits of implementing a buyback program in the future,” continued Weston.

As detailed in a separate press release issued today, the Rackspace board also named company president Taylor Rhodes to chief executive officer and member of the board, effective immediately. Graham Weston, co-founder, and chairman of the board, who has been serving as CEO of Rackspace since February, will continue to serve as non-executive chairman of the board.

“As a seven year leader of Rackspace, Taylor brings significant experience, dedication and passion to the role of CEO. He was instrumental in the development and execution of Rackspace’s managed cloud strategy that is now delivering strong results,” said Weston. “We are confident that under his leadership, and through the execution of our strategy, Rackspace is well positioned to lead in the large and growing managed cloud category.”

Strategic Plan to Drive Enhanced Value
Earlier this year, Rackspace announced a renewed focus on increasing share in the managed cloud market. Rackspace is targeting businesses and developers that trust it to manage not only their cloud infrastructure but also the many complex tools and applications that run on top of that infrastructure, including the latest databases and ecommerce platforms. By delivering expertise in these highly specialised areas, Rackspace enables customers to stay fast and lean and to focus on their core business.

This strategy has gained traction with customers and industry experts. Recent accomplishments include:
· For the first time in Rackspace history, the company added more than $20 million of new revenue in a single quarter during the second quarter of 2014.
· Sequential revenue growth of 4.3 percent, on a constant currency basis, in the second quarter was the highest rate of growth generated since the fourth quarter of 2012. Revenue growth in the multi-tenant public cloud segment accelerated to 7.5 percent sequentially.
· Rackspace’s leadership in the managed cloud market category was affirmed by Gartner Inc., a leading independent analyst for the IT industry, in its recent Magic Quadrant for Cloud Enabled Managed Hosting.

“Throughout our history, Rackspace has set the standard for managed services in our industry. We are famous for delivering Fanatical Support to over 200,000 customers globally,” said Rackspace CEO and President Taylor Rhodes. “Our underlying strength, as evidenced by our strong second quarter results and the recent traction with customers and industry experts, gives us great confidence in the future. In fact, we remain on track to have a strong third quarter and second half of the year and are comfortable with the guidance ranges we have provided. We are more focused than ever on expanding our leadership of the managed cloud market, and we think the best way to do that is by remaining an independent company.”