Rackspace Shares Jump as Company is Being Taken Private

Cloud hosting giant Rackspace Hosting, Inc. (NYSE:RAX) will soon no longer trade on the public markets, as the company is being taken private for $32 per share.

Apollo Global (NYSE:APO) is buying the company for $32 in cash, or around $4.3 billion. That takeover price represents only a small upside to the stock’s Thursday closing price of $30.19. Rumors of the transaction had been swirling since early this month, hence the relatively small upside.

From the press release:

Rackspace, the #1 managed cloud company, today announced that it has entered into a definitive agreement with affiliates of certain funds (the “Apollo Funds”) managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, “Apollo”), a leading 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.

The transaction, which is subject to the approval of regulators and shareholders, is expected to close in the fourth quarter of this year.

RAX-2016-08-26

Rackspace shares rose $1.33 (+4.41%) to $31.52 in Friday morning trading. RAX has gained more than 19% year-to-date, fueled mostly takeover speculation.

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