CenturyLink Reportedly Eyeing A Rackspace Acquisition

Telecom giant CenturyLink is reportedly looking to acquire Rackspace, fueling speculation that the embattled colocation and cloud provider will soon be bought.

According to a report this week from Bloomberg, citing people familiar with the matter, CenturyLink has already held discussions with Rackspace about a potential deal.

Both Monroe, La.-based CenturyLink and San Antonio-based Rackspace declined CRN's request for comment, citing company policies of not responding to rumor or speculation.

[Related: Rackspace Channel Partners Bubbling With Speculation About Possible Acquisition]

Rackspace has been the subject of more than a few merger and acquisition rumors, since hiring Morgan Stanley in May to explore strategic options. Companies including HP and IBM have been pegged as potential buyers. Networking giant Cisco was also named a possible suitor, but CEO John Chambers squashed that rumor at the Cisco Live event in May.

New speculation surfaced in July that suggested Rackspace was looking to take itself private.

Rackspace is exploring options amid an aggressive price war in the cloud services market, with rivals including Google and Amazon substantially cutting rates on their cloud offerings over the past year. Rackspace shares have fallen more than 50 percent since their peak at $79.24 in January 2013.

An executive at one Rackspace solution provider partner, who asked not to be named, said he would rather see Rackspace go private than be acquired by a large company like CenturyLink, out of fear that an acquisition could change Rackspace's culture and executive ranks.

"Rackspace is an easy company to work with and [an acquisition] could change that," the partner said, adding that Rackspace right now "has a great thing going. A culture of a company is extremely important and when big companies like [CenturyLink] buy a company the size of Rackspace, there are going to be changes."

CenturyLink's alleged interest in Rackspace doesn't come as a surprise, given the push the telecom service provider has been making into the cloud market over the past few years. In November, CenturyLink snapped up public cloud provider Tier 3 to bulk up its enterprise cloud services portfolio. In June of last year, the company again bolstered its cloud business with the acquisition of Platform-as-a-Service (PaaS) provider AppFog.

When Bloomberg first reported the potential CenturyLink-Rackspace deal on Monday, Rackspace shares rose 5.4 percent to $39.24. CenturyLink, meanwhile, fell 1.2 percent to $40.99.

PUBLISHED SEPT. 10, 2014