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By | Simon Sharwood 8th September 2014 04:58

CenturyLink said to have pondered Rackspace buy

Report says bit barn buyout rumour believable

US telco CenturyLink is said to be considering an attempt to acquire Rackspace, according to Bloomberg.

The newswire's report is sparse: nobody is saying anything concrete and folks familiar with the situation are the source.

Let's try to guess what's afoot here. CenturyLink already operates a 57-strong global bit barn network and a range of infrastructure-as-a-service offerings and makes much of its hybrid cloud credentials. The company is on track for a US$18bn year.

Rackspace's paltry nine bit barns and US$2bn-or-so revenue doesn't look too attractive, especially at its current valuation of about US$5.3bn. But Rackspace has reportedly asked its bankers to consider the company's future, because the burn rate needed to get into the cloud business is horrendous and the margins are thin.

So what does Rackspace have that CenturyLink does not? Three things:

  • A cool brand and credibility with developers
  • OpenStack skills
  • World-class support processes

The first is nice to have. The second is very handy, as OpenStackers keep telling us that they are making serious progress within enterprises. The third is hard to gauge: Rackspace promotes itself as possessing unusual operational cunning, but whether its processes are so exceptional they represent an asset worth acquiring is anyone's guess.

Whatever the truth of the matter, the appearance of a story like this on a financial newswire is not always an accident. Watching the share prices of the two companies come the resumption of trading on Monday may offer as many clues to what's going on here as anything else. ®

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