Rackspace CEO Rhodes resigns 6 months after sale

Rackspace Hosting CEO Taylor Rhodes said he is leaving the San Antonio managed cloud company to join a smaller private company in another city. Rackspace Hosting CEO Taylor Rhodes said he is leaving the San Antonio managed cloud company to join a smaller private company in another city. Photo: Courtesy Photo Photo: Courtesy Photo Image 1 of / 119 Caption Close Rackspace CEO Rhodes resigns 6 months after sale 1 / 119 Back to Gallery

Rackspace Hosting CEO Taylor Rhodes is leaving the San Antonio-based managed cloud computing company on May 16, about six months after he steered it through a $4.3 billion sale.

On Wednesday, Rhodes wrote in a blog post titled “Why I’m Leaving Rackspace” that he will become CEO of a smaller private company in another city. He didn’t identify the company but said it doesn’t compete with Rackspace. He added he will be able to discuss it in more detail in a couple of weeks.

“It’s using cloud technologies to disrupt what has been a very low-tech industry,” Rhodes said in the post. “The company is going through growing pains and needs a CEO who has been through those challenges before.”

Rhodes pocketed at least $22.7 million from the sale of his stock and options in the leveraged buyout of Rackspace by New York private equity firm Apollo Global Management, according to a Nov. 3 filing with the Securities and Exchange Commission.

Whether Rhodes will receive an additional severance pay upon his departure couldn’t be determined. Under the terms of his employment agreement, he is entitled to two times his annual base salary and bonus, plus other payments, if he leaves for “good reason” within 24 months of the sale. That includes “a material reduction” in his duties, base pay or target bonus.

Rhodes would be entitled to a “golden parachute” payment of almost $4.6 million if he leaves for good reason after the sale, the company disclosed in a September filing with the SEC.

“We don’t have a comment on Taylor’s compensation, as these details are between him and Apollo,” Rackspace spokeswoman Monica Jacob said in an email.

Rackspace’s No. 2 executive, Jeff Cotten, will serve as interim CEO, Jacob said.

“He and his fellow Rackers are determined to build on the momentum that Taylor created,” she said. A search for his replacement is underway. Cotten is a strong candidate to permanently fill the post, she said.

Cotten was named president earlier this year to fill the spot that had been vacated by Rhodes when he was promoted to CEO in 2014.

“We’re going to keep driving to expand Rackspace’s leadership of the fast-growing market for managed cloud services,” Cotten wrote in a blog post Wednesday.

In his blog post, Rhodes said Rackspace — which no longer publicly discloses its financial results — recently reported strong fourth-quarter results to its bond and debt holders.

“And 2017 is shaping up to be even stronger, as we’re exceeding almost all of the financial targets we established with Apollo and our board,” Rhodes said.

As part of the Rackspace acquisition, Apollo targeted $100 million in annual cost reductions.

The ax fell three months ago when Rackspace announced it was slashing about 6 percent of its staff, or at least 275 of Rackspace’s more than 4,600-person U.S. workforce. About 200 of the jobs targeted for elimination were at its headquarters.

Rhodes called the cuts “personally painful” but “necessary and manageable.”

Rhodes, who joined Rackspace in 2007, replaced company co-founder and former Chairman Graham Weston as CEO in 2014. Weston had been serving as chief executive on an interim basis.

At the time, Rackspace was facing intense and increasing competition from the likes of Amazon Web Services and Google Inc. But after a four-month review that included hiring investment banking firm Morgan Stanley to assist the company to size up its “strategic” options, Rackspace chose to remain as independent.

Less than two years later, in August, though, Rackspace announced a sale to Apollo.

“There are times when it’s great for companies to be public, and there are times that are great for companies to be private,” Rhodes said at the time. “When we were a private company, we could make decisions with a longer time horizon than potentially we can as a public company.”

Rhodes then reflected on the days when Rackspace was privately held and operated without the constant scrutiny by public investors.

“And we knew the right things to do for the long-term viability of the company, and that’s what we feel excited about doing as a private company,” he added.

Rhodes made assurances that Rackspace would keep its headquarters in San Antonio.

Rhodes said his new job will give him “more control” over his schedule, giving him more time to spend with his children.

pdanner@express-news.net

Twitter: @AlamoPD

News Researcher Misty Harris contributed to this article.