Rackspace shares dropped 22% to $16.39 at the close of trading, after the company raised $704 million in an initial public offering priced at the bottom of the marketed range.

Figure 1: Outlook cloudy: There's little sunshine on the horizon for Rackspace following a "disappointing" IPO.
(Source: Wolfgang Hasselmann on Unsplash)

The shares began trading yesterday on the Nasdaq Global Select Market under the ticker symbol "RXT." The Financial Times described it as a disappointing IPO that contrasted with the rising fortunes of publicly traded cloud businesses.

The US-based company, which leases server space, and helps corporations store and access data in the cloud, set a price of $21 per share for 33.5 million shares.

It had aimed to price the shares at up to $24 each. The total raised amount could increase to $809 million if the underwriters exercise a "greenshoe" option to purchase a further 5 million shares.

The company said it intends to use a portion of the net proceeds to pay off $600 million in debt.

Private lives
Rackspace confirmed in July it was planning to go public again, just four years after reversing its previous IPO – and 12 years after that previous initial public listing.

In 2016, the company went private in a $4.3 billion deal, with investors led by funds affiliated with Apollo Global Management.

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The aim was to gain the freedom to pursue a longer-term strategy without having to answer to shareholders keen for immediate results. It first went public in 2008.

According to the FT, Apollo will hold about 65.1% of Rackspace's voting power following the listing. New investors reportedly include the mutual fund managers BlackRock and Fidelity.

The FT suggested that the company has a total enterprise value of $7.6 billion, including debt of almost $4 billion.

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— Anne Morris, contributing editor, special to Light Reading