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There Finally May Be a Deal Brewing for Rackspace. Or Maybe Not.

The long-running saga to buy Rackspace may be coming to a close.

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Another day, another report about a possible buyer for cloud services company Rackspace. The company’s shares rose by as much as six percent this morning following a Bloomberg report saying telecom provider CenturyLink is interested in acquiring the San Antonio-based Rackspace.

It’s not the first time that a CenturyLink-Rackspace combination has been suggested. After Rackspace disclosed in May it had hired Morgan Stanley to “explore strategic options,” CenturyLink stubbornly remained on a steadily dwindling list of potential buyers. IBM, Cisco Systems and Hewlett-Packard have all taken themselves out of the running. Even so, activist shareholders like Dan Loeb have been buying up shares in the cloud services company in anticipation of a deal, or some other payday. Indeed, Rackspace has been a perennial target of M&A rumors for at least the last four years.

So here’s the problem with this latest possibility: CenturyLink has practically no cash — $181 million as of June 30 — and so would have to issue shares and probably take on significant debt to get Rackspace, which could sell for as much as $7 billion and change assuming a 30 percent premium.

It has the shares — CenturyLink trades at a valuation of about $23.6 billion. But then there’s the debt: CenturyLink has more than $20 billion in long-term debt on the balance sheet, with at least $12 billion of that stemming from its takeover of Qwest Communications in 2011. Taking on more debt would likely trigger a downgrade to its debt rating. It’s already on a negative outlook at the ratings agency Moody’s.

Now it’s worth noting that CenturyLink has a long history of structuring deals like this. When it acquired Saavis, another cloud player, in 2011, CenturyLink paid $3.2 billion. Saavis shareholders got $30 a share in cash, plus $10 a share of CenturyLink stock. CenturyLink also took on $700 million in debt.

Chairman and CEO Graham Weston, who returned to running the company after a sudden management shakeup in February, controls about 13 percent of Rackspace and may want to get paid in cash. Let’s assume for a moment he wants to sell his entire stake: That implies CenturyLink would have to take about $1 billion in debt, depending on the premium. That would push its debt-to-EBITDA ratio, or its ability to pay down its debt, to levels dangerously close to what Moody’s says would trigger a downgrade. This makes the odds of a deal pretty wobbly.

The more likely scenario appears to be that Rackspace stays independent, and nothing happens on the acquisition front. Analyst Gray Powell of Wells Fargo, who has been a pretty smart observer of the ebb and flow of Rackspace rumors, suggested in a research note on Aug. 25 that Rackspace could keep its shareholders happy with a share buyback worth as much as $1 billion by the end of 2015. And Weston has started making comments on earnings calls suggesting that he’s warming to the idea. At that size, a buyback could take as much as 22 percent of Rackspace’s shares off the table.

Something is clearly going to happen at Rackspace soon. But it may not be what investors buying its stock today expect.

This article originally appeared on Recode.net.

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