Seeking Alpha

Rackspace drops on BrightWire M&A report; CTL showed "casual" interest

  • Rackspace (RAX -5.4%) has received "only modest buyer interest" since putting itself on the block, BrightWire reports. Shares have added to the Thursday losses they saw following a re/code report stating sources have denied H-P made a bid.
  • BrightWire states CenturyLink (CTL - unchanged) "made an initial overture" to buy Rackspace, but adds its interest "was only casual and soon faded." Citi made the case for a Rackspace/CenturyLink deal last month.
  • Separately, Wells Fargo's Gary Powell says talks make him consider a Rackspace LBO deal (would involve P-E firms) unlikely, and that the market has "correctly assumed" a 70%+ probability that no strategic buyer (i.e. a tech company) will emerge.
  • Nonetheless, Powell reiterates an Outperform, and calls  Rackspace's asset value under-appreciated. He adds CenturyLink and H-P "have not completely ruled out a potential deal with RAX."
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