Rackspace To Stay Independent, Names Rhodes CEO; Stock Plunges

(RTTNews) - Shares of Rackspace (RAX) slid 17 percent in after-hours trade on Tuesday, after the cloud service provider said it has ended its evaluation of strategic alternatives and decided to stay independent.

Rackspace also named Taylor Rhodes as chief executive officer and a member of the board, effective immediately, and would lead its managed cloud strategy. Rackspace co-founder, Graham Weston, who has served as CEO and chairman since February, now becomes non-executive chairman of the board.

Rackspace shares had surged ever since reports surfaced that the company was mulling strategic alternatives. In July, Rackspace was reported to be in talks with a private equity firm to go private. Earlier, the company hired Morgan Stanley to explore strategic options and was approached for partnership and acquisitions.

While Rackspace has managed to boost revenue, investors are concerned about competition from companies that are creating their own cloud services.

Last month, investment firm Blue Harbour Holdings LLC disclosed a 6.4 percent stake in Rackspace. Blue Harbour said the investment represented an attractive opportunity and that it would engage in talks with Rackspace and potential strategic partners over the company's business, capital structure, board composition and strategic alternatives.

As for the leadership change, Rackspace said incoming CEO Rhodes is a company veteran who has served in a variety of leadership positions since 2007. He retains his previous role as president and remains responsible for the company's operations worldwide

Rhodes joined Rackspace in 2007 to lead the business unit responsible for delivering Fanatical Support to its largest and most complex customers.

Rackspace stock closed Tuesday at $39.34, up $0.34 or 0.87%, on a volume of 4.2 million shares on the NYSE. In after hours, the stock dropped $7.21 or 18.33% at $32.13.