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OpenStack kingpin Rackspace hires bankers to help it mull 'inbound strategic proposals'

Brutality of cloud economics means 100,000 servers are no longer enough

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Updated Rackspace has retained Morgan Stanley to help it evaluate "inbound strategic proposals".

In other words, a partnership or acquisition is something that may lie in Rackspace's future, according to Bloomberg, which broke the news on Thursday.

"Our board decided to hire Morgan Stanley to evaluate the inbound strategic proposals, and to explore any other alternatives which could advance Rackspace's long-term strategy," the company told Bloomberg in a statement.

The hosting and cloud company has had a tough year during which its long-time chief executive Lanham Napier left and growth of its strategically crucial public cloud services slowed.

Though it continues to make money, its profit margins are under a lot of pressure as companies like Google, Amazon, and Microsoft use their immense scale to enforce punishing price cuts on the cloud.

Rackspace's chief technology officer John Engates recently told El Reg that its dedication to fanatical service means it does not need to compete with "commodity cloud" companies.

However, the company is caught in a tough place with commodity companies on the one side, and equally large enterprise IT firms like IBM, HP, and VMware moving into cloud with lots of support on the other.

Judging by the Bloomberg story, Morgan Stanley will help Rackspace evaluate its options in a changing market. Since 2005, the company has poured over $1bn into its IT equipment and data centers, so for any company looking to rapidly expand its global footprint, that could be a good bet.

HP, for instance, has said it hopes to expand its just-launched HP Helion public cloud to 20 data centers.

At the time of writing, no one from Rackspace had returned our phone calls or emails. The news, which went out on the wire shortly before the end of trading, meant Rackspace's shares closed up 7.12 percent, then rose a further 6.91 percent in after-hours trading.

Update:

Shortly after this was published Rackspace sent us their statement, confirming the details of the Bloomberg story.

"In recent months, Rackspace has been approached by multiple parties who have expressed interest in a strategic relationship with Rackspace, ranging from partnership to acquisition.

Our board decided to hire Morgan Stanley to evaluate the inbound strategic proposals, and to explore any other alternatives which could advance Rackspace's long-term strategy.

No decision has been made and there can be no assurance that the Board’s review process will result in any partnership or transaction being entered into or consummated. The company has not set a timetable for completion of this process and does not intend to discuss or disclose further developments with respect to this process unless and until the Board approves a specific partnership or transaction," Rackspace wrote. ®

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