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$8.8 billion deal Between HP Enterprise and Micro Focus for Software Assets

$8.8 billion deal Between HP Enterprise and Micro Focus for Software Assets
In a deal worth $8.8 billion, the non-core software assets of Hewlett Packard Enterprise Co (HPE) will be spun off and merged with Britain's Micro Focus International Plc, the companies announced this recently.  
Since HPE separated last year from computer and printer maker HP Inc, the company has shifted its strategy to a few key areas such as networking, storage and technology services under its Chief Executive Meg Whitman and this deal is viewed as part of that strategy.
"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.
HPE's latest quarterly earnings announcements coincided with the announcement of the deal with Micro Focus, a multinational software company based in Newbury, United Kingdom. Down 6 percent from $13.1 billion a year earlier, HPE reported net revenue of $12.2 billion in the third quarter.
On the same day, two of HPE's biggest rivals - Dell and EMC Corp were united by the completion of a merger between the two.  
It is expected that the transaction would be tax free for HP. While HPE shareholders will own 50.1 percent of the combined company, Micro Focus will pay $2.5 billion in cash to HPE. The new company will be run by its executives and operate under the name Micro Focus. In relation to the separation of the assets, HP said it would pay $700 million in one-time costs.
One of the British firms, acquired by HPE, is being sent to where it started in the deal.
Through the $10.3 billion purchase of Britain's Autonomy Corp Plc in 2011, HPE acquired part of its software portfolio. The central part of the U.S. group's move into software was supposed to be HP's $11 billion purchase of Autonomy.
Accusing Autonomy executives of financial mismanagement, HP later wrote off three-quarters of the company's value.
IT Operations management businesses, enterprise security, information management & governance, software for application delivery management and big data are the other HPE assets that will be merged.
A market shift toward cloud subscription services has challenged HPE's software revenue growth. Earlier, talks to sell the software unit for between $8 billion and $10 billion had been held with private equity firms.
This would be Micro Focus’ largest deal to date as the company, with a market capitalization of 4.45 billion pounds ($6 billion), has been bulking up on acquisitions to boost growth. U.S. firm Serena Software had been acquired by Micro Focus for $540 million earlier this year.
"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," Kevin Loosemore, executive chairman of Micro Focus, said.
After the United Kingdom voted to leave the European Union, HPE is the latest firm looking to Britain for expansion opportunities. Given current exchange rates, valuations of British companies have been relatively low.


Christopher J. Mitchell

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