Rackspace Hosting, Inc. Kills Merger Plan, Stock Tumbles

Rackspace Hosting, Inc. (NYSE: RAX) tumbled in extended trading Tuesday after the company said it will remain independent despite "entertaining various proposals" from suitors.

Rackspace traded recently down 16 percent to $32.92 per share.

The company also said it won't authorize a share buyback program and named 43-year-old W. Taylor Rhodes as chief executive effective immediately.

The San Antonio-based cloud services company in May hired investment banker Morgan Stanley to help evaluate offers to acquire Rackspace and has now completed a four-month strategic review of alternatives.

"The board decided to terminate merger discussions," co-founder and Chairman Graham Weston said. "None of these proposals were deemed to have as much value as the expected value of our standalone plan."

Weston, who had also served as interim chief executive until Tuesday, said the Rackspace buyback program would siphon too much cash needed to fund growth.

"It is prudent to maintain flexibility at this time to ensure that the appropriate investments can be made to drive our strategy forward," Weston said.

The newly-named CEO Rhodes joined Rackspace in 2007 and in addition to new duties will retain his current title as president.

Rackspace, with a market capitalization of $5.6 billion, is facing stiff competition from the likes of Amazon.com, Inc., Google Inc and many others.

Rumored potential acquirers recently have included Hewlett-Packard Company, International Business Machines Corp. and CenturyLink, Inc.