In short, Rackspace has ended its evaluation of alternatives that would result in Rackspace being acquired. Rackspace’s press release even indicated that the company has now declared its commitment to remain independent.
Rackspace has been considered a buyout candidate since May, when the company said it had been approached by multiple parties who expressed interest in exploring a strategic relationship. Those strategic fits were said to be ranging from a partnership to an outright acquisition. That was then …
READ ALSO: Is Nokia Really 40% Undervalued?
Unfortunately, there is not even going to be a stock buyback to offset the buffer here. Rackspace said that its board of directors also considered a share repurchase program and determined that it is prudent to maintain flexibility at this time to ensure that the appropriate investments can be made to drive the company’s strategy forward. Still, it left a buyback opportunity open for the future.
Rackspace’s comments included the statement:
After a comprehensive review, the board decided to terminate M&A discussions. Based on Rackspace’s reaccelerated revenue growth and its potential trajectory for the coming year, the board concluded the company is best positioned to maximize shareholder value by executing its strategy as the #1 managed cloud company.
As far as the proposals it received, the company said:
None of these proposals were deemed to have as much value as the expected value of our standalone plan. We concluded that the company is best positioned to drive value for shareholders, customers and Rackers through the continued execution of its strategic plan to capitalize on the growing market opportunity for managed cloud services.
Rackspace shares closed up 0.9% at $39.34, but the stock was down a sharp 16% at $33.00 or so in the after-hours trading session. Rackspace’s 52-week trading range is $26.18 to $54.20, and the consensus price target prior to this negative news was around $41.50.
Rackspace is no longer in the special situation category. Now Rackspace is just another growth stock again, but with lower growth than expected. We would point out that even after this drop to around $33, the stock trades at nearly 50 times this year’s expected earnings.
READ ALSO: RBC’s 4 Top Large-Cap Technology Services Stocks to Buy
Top Gaining Stocks
Top Losing Stocks