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Rackspace reveals retirement plan behind decision to go public by selling 17% of itself

We can't call it an initial public offering given this is its second time around on the share market

Rackspace Technology has revealed the terms of its planned return to the stock market.

The company will sell 33.5 million shares and expects punters to pay between $21 and $24. A further 5.025 million shares will later be offered to underwriters at the IPO price, with the whole exercise yielding gross proceeds of approximately $703.5m to $804.0m.

What will Rackspace do with all that lovely cash? Forget new data centres or showering staff with it: the company told investors some of it will be used "to redeem, retire or repurchase $600 million aggregate principal amount of its outstanding 8.625 per cent Senior Notes due 2024 and to pay related premiums, fees and expenses." The rest will go towards "general corporate purposes."

So hardly a payday for the current owner, private equity group Apollo Global Management, which spent $4.3bn taking Rackspace private. The sale is not silly, however, because Apollo would retain between 81 per cent and 83 per cent of the company at a valuation of over $5bn.

Which isn't a huge, but with $600m of notes off the books, Rackspace would be in better shape and more attractive to future investors.

Coronavirus helps too: the company's prospectus says: "The COVID-19 pandemic has accelerated cloud transformation efforts for new and existing customers and underscored the importance and mission-critical nature of multicloud strategies. Over the last several months, customers have increasingly turned to multicloud solutions to pivot to new business models and save costs. In fact, our hiring has continued to accelerate during the COVID-19 pandemic."

The stock goes on sale next Monday and will trade as RXT. ®

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