CenturyLink Considers IaaS with Possible Rackspace Buyout

In what could create a major shake up in the IaaS space, CenturyLink has set its sights on cloud vendor Rackspace. The company is rumored to be making Rackspace its next target for acquisition, following a multi-year buying spree that began with its $2.3 billion acquisition of Savvis in 2011 along with its merger with Qwest that same year.

The murmurings follow a recent repositioning from Rackspace just a month ago in which the company said it will no longer offer pure IaaS a la AWS, Google and Microsoft. Instead, the company said it would be providing IaaS as part of its larger Managed Cloud services, with an emphasis on support and integration.

Rackspace has been undergoing a period of adjustment since the resignation of CEO Lanham Napier in February. In mid-May it reportedly hired Morgan Stanley to investigate options like an acquisition or merger. The company, valued at $5.3 billion, reportedly received acquisition bids from HP and IBM and also examined the possibility of going private. CenturyLink, along with Cisco, Dell and EMC, also expressed interest in buying out the company at that time.

CenturyLink, which is valued in the neighborhood of $23.6 billion, has been steadily building momentum and is recognized as a major player in the cloud IaaS arena. That position has been boosted by acquisitions of AppFrog, a provider of PaaS, and public cloud services provider Tier 3 last year.

It remains to be seen if a buyout is imminent, and if so, where Rackspace would fit in the CenturyLink empire. With the company already entrenched in the traditional telco space and having firm toeholds in the data center hosting and cloud platform arenas, it may be in a prime position to go up against AWS, IBM and the other bigwigs dominating the IaaS space. For the time being, both companies are benefiting from the rumors with CenturyLink and Rackspace shares up at the close of trade on Friday.