Reports: CenturyLink Mulls Acquisition Of Cloud Vendor Rackspace

(RTTNews) - Integrated telecommunications company CenturyLink, Inc. (CTL) is looking to acquire beleaguered cloud vendor Rackspace Hosting, Inc. (RAX) as it continues its acquisition spree, according to media reports on Sunday. Rackspace has been looking at its strategic options of late.

San Antonio, Texas-based Rackspace provides cloud computing services and managing Web-based IT systems for small and medium-sized businesses and large enterprises worldwide.

CenturyLink has been on an acquisition spree in order to boost its cloud offerings. It first spent $2.3 billion to acquire in 2011 to acquire Savvis along with its data center and hosting business.

It then acquired PaaS provided AppFog in June 2013 and Tier 3, an innovative provider of public cloud services, in November 2013.

CenturyLink is currently valued at $23.6 billion, while Rackspace's current market capitalization is just $5.3 billion.

Reports in mid-May revealed that Rackspace hired Morgan Stanley (MS) to explore strategic options, including an acquisition or merger, after being approached by multiple parties for partnership and acquisitions.

In early July, reports revealed that Rackspace was in talks with a private equity firm to go private. Rackspace's intentions to go private came amidst three acquisition bids, including proposals from Hewlett-Packard Co. (HPQ) and International Business Machines Corp. (IBM). HP had offered to buy Rackspace for up to $43 a share, valuing the company at $6 billion.

Other potential buyers or partners at that time included CenturyLink, Cisco Systems, Inc. (CSCO), Dell, Inc. and EMC Corp. (EMC).

Rackspace has been pushed to a corner after giants in the field such as Amazon Web Services, Microsoft Corp. (MSFT), IBM and Google, Inc. (GOOG) started to deliver compelling cloud products and leveraged their larger existing customer base.

The company's troubles began after CEO Lanham Napier unexpectedly retired in February, with co-founder, Executive Chairman and former CEO Graham Weston taking over the reigns of the company. Napier joined Rackspace in 2006 and under him it grew to $1.5 billion in revenue in 2013 from $1.5 million then.

CTL closed Friday's regular trading session at $41.47, up $0.41 or 1.00% on a volume of 3.06 million shares, and RAX closed at $37.24, up $0.03 or 0.08% on a volume of 2.68 million shares.