Please ensure Javascript is enabled for purposes of website accessibility

Report: Amazon in Discussions to Buy Minority Stake in Rackspace

By Eric Volkman – Aug 17, 2020 at 8:28PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If a deal is ultimately reached, Amazon will own a chunk of a frequent business partner.

Cloud services company Rackspace Technology (RXT -4.48%) was a hot ticket on Monday after a media report that a high-profile peer is in talks to buy a minority stake in the company. The Reuters report, which is based on information from "people familiar with the discussion," said the interested party is no less than Amazon (AMZN -0.64%).

Owning a piece of Rackspace would theoretically be advantageous for Amazon Web Services (AWS), the lucrative cloud computing business operated by the retailer. Rackspace's core business is the leasing of server space for clients wishing to manage data on the cloud; this activity makes it a frequent business partner of AWS, although it also partners with Alphabet's Google and Microsoft.

The interior of a data center.

Image source: Getty Images.

Rackspace is currently majority-owned by alternative investment specialist Apollo Global Management (APO). Apollo acquired Rackspace in 2016 and shortly thereafter took it private. Rackspace returned to the stock market in a slightly different corporate form earlier this month following an IPO, but its stock hasn't been popular. The shares have consistently traded several dollars under their $21 IPO price.

It is unclear whether Amazon is talking with Apollo for the Rackspace stake, or with another shareholder or shareholders. The Reuters article also did not provide a possible size or price for the holding under negotiation.

The sources interviewed did say that there is no guarantee a deal will be reached with Amazon. They added that if an agreement is reached, negotiations over its specifics could last for one or two months.

The aforementioned parties have yet to comment on the article. Not surprisingly, shares of Rackspace zoomed higher in trading on Monday, rising by over 10% on the day.

 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft and recommends the following options: long January 2022 $1920 calls on Amazon, short January 2022 $1940 calls on Amazon, long January 2021 $85 calls on Microsoft, and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$114.41 (-0.64%) $0.74
Rackspace Technology, Inc. Stock Quote
Rackspace Technology, Inc.
RXT
$4.26 (-4.48%) $0.20
Apollo Global Management, LLC Stock Quote
Apollo Global Management, LLC
APO

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.