NEW YORK (TheStreet) -- According to multiple reports, CenturyLink (CTL) , the country's third-largest telecommunications company, is in talks to buy Web-hosting provider Rackspace (RAX) for $5.3 billion in a deal that could be at the start of the shakeout in business of cloud computing.
Reports of the talks sent shares of Rackspace up 6% to $39.47 late Monday morning. The stock is up less than 1% so far this year, compared with an 8.4% gain for the Standard & Poor's 500 Index.
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CenturyLink shares were down 2% to $40.63. They have risen 27.6% this year.
Neither Rackspace nor CenturyLink was immediately available for comment.
The reported talks come at a point when San Antonio-based Rackspace is putting its growth problems behind it. In the second quarter, revenue rose 17%, as its profit nudged up.
So why would Rackspace take an offer that gives its own shareholders no premium, unless it's anticipating a bidding war.
The reason, it seems to me, is that Rackspace needs the capital base of Louisiana-based CenturyLink, a phone company that largely serves rural customers and that acquired Savvis, a Web-hosting company, in 2011 for $2.5 billion.
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CenturyLink generated $5.6 billion in operating cash flow last year, and it has been willing to invest some of that money -- $1.4 billion so far this year -- in its operations. Unlike Verizon (VZ) and AT&T (T) , CenturyLink has a history, through Savvis, of putting cloud computing first in its plans, and has made several cloud-based acquisitions during the past two years.