Report: CenturyLink Eyeing Rackspace

Just when you thought there weren't any potential buyers for Rackspace Hosting Inc., one has reportedly surfaced. Telecommunications company CenturyLink Inc. is seeking to acquire San Antonio-based Rackspace to further expand into cloud-computing services, Bloomberg News reported late Sunday. The report was attributed to people who did not want to be identified.

Whether a deal will happen couldn't be determined. Representatives for Rackspace and CenturyLink of Monroe, Louisiana, said they don't comment on "rumors or speculation."

Rumors about Rackspace's fate have been swirling since May, when the company announced it had hired investment banking firm Morgan Stanley to assist with exploring strategic options, including a possible sale or partnership.

Until Bloomberg's Sunday report on CenturyLink, the rumor mill had become relatively quiet. Indeed, things were so quiet that online technology publication TechCrunch in July reported that Rackspace was considering taking itself private. But that never happened.

Rackspace, a cloud-computing and Web-hosting company, has been facing increasing competition and price wars from such foes as Inc., Google Inc. and Microsoft Corp. While Rackspace focuses on customer support, its higher prices may make it harder for the company to win new business, analysts have said.

Hewlett-Packard Co. and IBM made bids for Rackspace, TechCrunch previously reported. Cisco Systems Inc., Dell and EMC Corp. were mentioned by TechCrunch as possible suitors.

Citigroup Inc. analyst David Phipps suggested in June that Rackspace might be a good fit for CenturyLink. Rackspace would add needed revenue growth.

Phipps wouldn't comment Monday.

Rackspace could fetch an estimated $49 to $54 a share, according to a Monday report by Wells Fargo analyst Gray Powell, as reported by Bloomberg. That would put Rackspace's market value at between $7 billion and $7.7 billion.

The company's market capitalization is about $5.7 billion. The shares closed at $39.79, up $2.55, or 6.8 percent, on Monday.

Still, Monday's closing price is far...

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