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Rackspace Enters Into $4.3 Billion Transaction to Become Private

Through acquisition by funds managed by affiliates of Apollo Global Management
This is a Press Release edited by on 2016.08.29

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Rackspace US, Inc., has entered into a definitive agreement with affiliates of certain funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries), a global alternative investment manager, to be acquired for $32.00 per share in cash.

In connection with the transaction, funds managed by Searchlight Capital Partners, L.P. will make a strategic equity investment in the acquired company.

The transaction has a total value of $4.3 billion, which includes the assumption of $43 million of net cash.

Upon completion of the transaction, Rackspace will become a privately-held company.

The $32.00 per share cash consideration represents a premium of 38% when compared to Rackspace's unaffected closing stock price on August 3, 2016, the last trading day prior to news reports speculating about a potential transaction. The Rackspace board of directors unanimously approved the agreement with the Apollo Funds and recommends that Rackspace stockholders vote in favor of the transaction.

Graham Weston, co-founder and COB, Rackspace, commented: "This transaction is the result of diligent analysis and thoughtful strategic deliberations by our board over many months. Our board, with the assistance of independent advisors, determined that this transaction, upon closing, will deliver immediate, significant and certain cash value to our stockholders. We are also excited that this transaction will provide Rackspace with more flexibility to manage the business for long- term growth and enhance our product offerings. We are confident that as a private company, Rackspace will be best positioned to capitalize on our early leadership of the fast-growing managed cloud services industry."

Taylor Rhodes, president and CEO, Rackspace, said: "We are presented with a significant opportunity today as mainstream companies move their computing out of corporate data centers and into multi-cloud models. Apollo and its partners take a patient, value-oriented approach to their funds' investments, and value Rackspace's strategy and unique culture. This is an exciting transaction for Rackspace and we look forward to working closely together."

"We are tremendously excited about the opportunity for our managed funds to acquire Rackspace," said David Sambur, partner, Apollo. "We have great respect for the company's talented employees and their commitment to deliver expertise and exceptional service for the world's leading cloud platforms. We look forward to working with Taylor and the entire management team and Searchlight to help advance Rackspace's strategy and continue the company's strong heritage of innovation."

The transaction is expected to close in the fourth quarter of this year.

The transaction is subject to the conclusion of the applicable antitrust waiting periods in the United States, the European Union and Israel, stockholder approval and other customary closing conditions.

Advisors and Financing Providers
Financing is being provided by Citigroup, Inc., Deutsche Bank, Barclays Bank PLC and Royal Bank of Canada. PSP Investments Credit USA LLC has also committed to provide a portion of the financing. Citigroup, Deutsche Bank, Barclays and RBC Capital Markets, LLC are acting as financial advisors to Apollo and Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal advisor to Apollo.

Goldman, Sachs & Co. is acting as financial advisor to Rackspace and Wilson Sonsini Goodrich & Rosati, Professional Corporation is acting as its legal advisor. Morgan Stanley also provided services in connection with the transaction.

Founded in 1998 in San Antonio, Rackspace provides businesses with expertise and customer service for leading cloud platforms, including AWS, Microsoft, and OpenStack (the open-source cloud platform that Rackspace co-founded in 2010, along with NASA). It has been publicly traded on the New York Stock Exchange since 2008. It serves business customers in more than 120 countries, from offices and data centers on four continents. Its customers include a majority of the enterprises on the Fortune 100 list. The company has posted consistent growth in revenue and profit through its history. It reported 2015 revenue of $2.0 billion.

Rackspace Hosting, its directors and certain executive officers are participants in the solicitation of proxies from stockholders in connection with the acquisition of the company. The company plans to file a proxy statement with the SE in connection with the solicitation of proxies in connection with the Transaction.

Kevin Costello, Ossa Fisher, John Harper, Lewis J. Moorman, Fred Reichheld, William Taylor Rhodes, Lila Tretikov and Graham Weston, all of whom are members of company's board of directors, and Karl Pichler, SVP, CFO, are participants in the company's solicitation.

Other than Weston, none of such participants owns in excess of 1% of company's common stock. He may be deemed to own approximately 15% of the company's common stock.