Who Got Rich This Week: Rackspace Founder and Mega-merger Investment Banker

May 17 2014, 8:48am CDT | by

Each week at Forbes we scan our database of corporate insiders to see who got richer from the action in the stock market.

Rack city

San Antonio native Graham Weston made the best investment his life in the late 1990s when he provided start-up capital to the nascent company that would become Rackspace. The web-hosting and cloud-computing firm, which Weston would lead as CEO until 2006, continued to grow — even despite a less-than-stellar IPO during the pre-crisis market of August 2008 — eventually minting a ten-figure fortune for its largest shareholder. But Weston’s net worth topped out at $1.3 billion in 2013; then Rackspace’s stock price began to slide. Facing stiff competition from giants like Amazon and Google, it slipped from as high as $81 per share in January 2013 down to below $27 per share earlier this month.

But Rackspace began experiencing a mild resurgence earlier this week after a strong first-quarter earnings report that beat expectations, including a 16% increase in revenue to $421 million. By Friday, investors began rapidly snapping up Rackspace stock in a frenzy that pushed its price past $37 per share, a 39% increase from a week ago. The source of enthusiasm? News broke late Thursday that the company had hired Morgan Stanley to explore potential partnerships or acquisitions. The surge has provided a sizable one-week bump to its chairman’s net worth. Weston, who owns 13.7% of the company, saw his holdings improve $211 million, from $569 million to $780 million by midday Friday. If buyout talks heat up, Weston could find himself nearing the billionaire ranks again this year.

Merger mavens

Global investment bank Moelis & Company was founded in 2007 by a cadre of ex-UBS financiers. Since then, it has advised on some of the most notable megadeals in recent history, including Anheuser Busch’s $61.2 billion sale to InBev, the American Airlines and US Airways merger and Heinz’s $28 billion sale to Berkshire Hathaway and 3G Capital. Most recently, it presided over the implosion of what would have been the largest merger in advertising history — the $35.1 billion deal between Omnicom and Publicis that collapsed last week. If investors think Moelis & Co. merit any of the blame, they’re not showing it. The bank, which executed its initial public offering in April, is up 11% in the past week, closing Thursday at $29.15 per share and a market capitalization of nearly $1.6 billion

Kenneth Moelis, the company’s founder, chairman and ceo, has benefited the most from the company’s stock movement. An industry veteran who started out at Drexel Burnham Lambert in 1981, Moelis is the largest shareholder of his namesake firm, with a 26% economic stake that was worth $333 million when the company publicly listed a month ago at $25 per share. In the past week his stake has appreciated by $39 million from $350 million to $389 million.

Despite the IPO, Kenneth Moelis isn’t relinquishing any control of Moelis & Co., retaining 97% of its voting shares. He told the New York Times, “It’s my largest investment in the world, and I’m protecting it.”

 
 

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