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Rackspace Seeks $400 Million In IPO

Auction-style format a la Google on tap

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The public offering from the hosting company comes amid the unsettled US economy, but Rackspace believes a Google-like auction will pull in nine figures.

Rackspace took care of the formality of filing with the Securities & Exchange Commission ahead of the weekend, delivering their S-1 form to announce the intent to make a public offering.

Though the hosting company didn’t say at first what they hoped to raise, later reports pegged the number at $400 million. The method in which they raise it will look familiar.

TechCrunch followed up its initial break of the pending IPO in noting the format of the offering:

The underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse, and WR Hambrecht & Co. (the leading proponent of such IPO pricing). Pricing through an auction is designed to make sure the company raises the most money possible instead of giving up a first-day pop to investors who are allocated shares by the investment banks doing the deal.

Shares will still be allocated to such clients, but anyone who bids beforehand in the auction at or above the eventual IPO price will also get shares. All in all, it is a much more efficient way to price an IPO and more companies should do it.

The infusion of income should permit Rackspace to beef up the number and capacity of datacenters it can provide to clients. Their strategy likely contains elements of service offerings, based on its acquisition of Webmail.us (renamed as Mailtrust) and the deployment of a “hosting cloud” service called Mosso.

Big names like IBM and Amazon.com await the kind of competition Rackspace may attempt with its infusion of capital. $400 million may sound like a substantial sum, but Rackspace will want to avoid outgrowing demand, as has happened with other hosting services when the dot-com bubble burst in 2000.

Rackspace Seeks $400 Million In IPO
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