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Rackspace Sells To Private Equity Firm For $4.3 Billion

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Rackspace Hosting Inc. announced today it is being purchased by the private equity firm Apollo Global Management LLC in a $4.3 billion deal that will take the cloud-computing company private.

The deal, which was unanimously approved by the Rackspace board of directors, is expected to close in the fourth-quarter of the year. Rackspace stockholders will still have an opportunity to vote on the deal.

In a statement available on the Rackspace website, the company details that Apollo will pay $32 per share in cash. That’s a 38 percent premium to Rackspace’s closing price on Aug. 3 when talks of a potential sale surfaced, and 6 percent above the closing price on Thursday.

"We are tremendously excited about the opportunity for our managed funds to acquire Rackspace," said David Sambur, Partner at Apollo. "We have great respect for the company's talented employees and their commitment to deliver expertise and exceptional service for the world's leading cloud platforms. We look forward to working with Taylor and the entire management team and Searchlight to help advance Rackspace's strategy and continue the company's strong heritage of innovation."

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Graham Weston, co-founder and chairman of the board of Rackspace

Graham Weston, co-founder and chairman of the board of Rackspace, said the transaction is the result of “diligent analysis and thoughtful strategic deliberations” by the Rackspace board over many months.

“Our board, with the assistance of independent advisors, determined that this transaction, upon closing, will deliver immediate, significant and certain cash value to our stockholders,” Weston said. “We are also excited that this transaction will provide Rackspace with more flexibility to manage the business for long-term growth and enhance our product offerings. We are confident that as a private company, Rackspace will be best positioned to capitalize on our early leadership of the fast-growing managed cloud services industry."

In a blog post on the company's website, President and CEO Taylor Rhodes proved some greater detail into the deal and what it means for the company to go private.

"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," he wrote. "It will allow us additional flexibility to enhance the multi-cloud services that today’s customers demand, and to seize the big opportunity that we face as the world’s #1 managed cloud company."

He went on to explain that Apollo Global was the right partner for the job. The private equity firm -- perhaps best known for saving Hostess, the maker's of the ubiquitous Twinkie, from the chopping block has in their history taken other companies through the public-to-private process.

"Apollo has assembled a group of investors and together Apollo and those investors will own Rackspace, upon closing of the transaction," Rhodes writes. "Apollo has led transactions to take private ADT Security Services, the Fresh Market grocery chain, McGraw Hill Education (formerly a textbook publisher and now a leading online education company) and Sirius Satellite Radio (now Sirius XM). Apollo has given its portfolio companies the flexibility to invest their resources in long-term strategies that have powered them to new heights of success."

He went on to say Apollo supports Rackspace's managed cloud strategy, and has asked the company's management team to continue to lead the company, including Rhodes.

"I couldn’t be more excited about this move, which is the right one for this moment in our history," he said. "I expect that it will rekindle the entrepreneurial spirit of our first decade as a startup, before our IPO on the New York Stock Exchange in 2008."