One of Britain’s largest independent technology firms is to announce a multibillion-pound deal to buy part of Hewlett Packard’s software business.
Hewlett Packard Enterprise (HPE) will spin off and merge its non-core software assets with Britain’s Micro Focus International in a deal worth $8.8bn (£6.6bn), the companies said on Wednesday.
The move is part of HPE chief executive Meg Whitman’s plans to shift HPE’s strategy to a few key areas such as networking, storage and technology services since the company separated last year from computer and printer maker HP Inc.
“With today’s announcement, we are taking another important step in achieving the vision of creating a faster-growing, higher-margin, stronger cash-flow company well positioned for our customers and for the future,” Whitman said in a statement.
The deal with Micro Focus, a multinational software company based in Newbury, Berkshire, was announced along with HPE’s latest quarterly earnings. In the third quarter, HPE reported net revenue of $12.2bn, down 6% from $13.1bn a year earlier.
The deal comes on the same day Dell and EMC Corp completed their merger in a deal that unites two of HPE’s biggest rivals.
The transaction is expected to be tax free to HPE. Micro Focus will pay $2.5bn in cash to HPE, while HPE shareholders will own 50.1% of the combined company, which will operate under the name Micro Focus and be run by its executives. HP said it would pay $700m in one-time costs related to the separation of the assets.
In the deal, HPE is sending one of the British firms it took over back to where it started.
HPE acquired part of its software portfolio through the $11bn purchase of Britain’s Autonomy Corp in 2011. The takeover was supposed to form the central part of HP’s move into software.
HP later wrote off three-quarters of the company’s value, accusing Autonomy executives of financial mismanagement.
Other HPE assets that will be merged include software for application delivery management, big data, enterprise security, information management and governance and IT operations management businesses.
HPE’s software revenue growth has been challenged by a market shift toward cloud subscription services. It had earlier been in talks with private equity firms to sell the software unit for between $8bn and $10bn.
Micro Focus, with a market capitalisation of £4.45bn ($6bn), has been bulking up on acquisitions to boost growth, and this would be its largest deal to date. Earlier this year, Micro Focus acquired US firm Serena Software for $540m.
Kevin Loosemore, executive chairman of Micro Focus, said that “the time is right for consolidation in the infrastructure software market and this proposed merger will create one of the leading players in this space.”
HPE is the latest firm looking to Britain for expansion opportunities after the UK voted to leave the EU. Valuations of British companies have been relatively low given current exchange rates.
HPE announced in May that it had merged its call centre and services unit with Computer Sciences Corp to create a $9bn company.