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It's Official: Rackspace Going Private

Apollo Global Management leads a group of investors that agree to pay $4.3 billion for the cloud hosting provider and OpenStack pioneer.

After a month of renewed speculation about an acquisition, a group of investors led by Apollo Global Management said Friday they had agreed to purchase Rackspace Hosting for $4.3 billion and take the cloud provider private.

The firm pulled the trigger on purchasing the San Antonio-based cloud provider that's been testing the market for the better part of more than two years for a premium of 38 percent over the company's closing stock price on Aug. 3, the day news first broke of a potential deal.

The innovative cloud provider, which pioneered the OpenStack open-source cloud operating system, had struggled in recent years to keep up with hyper-scale competitors like Amazon Web Services and Microsoft Azure.

[Related: Rackspace Is Betting On The Wisdom Of 'Co-Opetition']

In response to the almost impossibly rigorous demands of competing in the cloud market, Rackspace struck deals last year to offer managed services for those competitors.

Rackspace CEO Taylor Rhodes wrote in the company blog Friday that the deal was unanimously approved by Rackspace's board, and the company expected the approval of stockholders and regulators by the fourth quarter of 2016.

"We expect that this transaction will help us better serve our customers in 120 countries, who now include more than half of the Fortune 100. It will allow us additional flexibility to enhance the multicloud services that today’s customers demand, and to seize the big opportunity that we face as the world’s No. 1 managed cloud company," Rhodes said.

In a Q2 earnings call earlier this month, Rhodes told investors that the company was "laser-focused" on becoming the largest provider of managed services to AWS customers.

Rhodes stayed mum during that call on reports that surfaced just days earlier in The Wall Street Journal and Reuters that an acquisition by Apollo was imminent and a price tag of more than $3.5 billion was on the table.

Apollo Global Management and its subsidiaries focus on investments primarily in the chemical, commodities, consumer and retail, distribution and transportation, financial and business services, manufacturing and industrial, media, and packaging and materials industries, as well as in satellite and wireless businesses.

But in December 2014, the company expanded that portfolio, taking a plunge into the IT arena by acquiring Presidio, a global IT solutions provider.


Rhodes said Friday that current Rackspace management, including himself, planned to stay on.

"Apollo strongly supports our managed cloud strategy," he blogged. "It has asked our management team to continue to lead the company, with me as president and CEO."

In May 2014, Rackspace informed the Securities and Exchange Commission that it had hired Morgan Stanley to formally explore a merger or acquisition. That September, Bloomberg News reported CenturyLink was looking to buy the company.

Speculation about potential suitors fizzled after Rackspace removed itself from the market, not content with any of the offers it had fielded.

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