"Never test the depth of a river with both feet."
HPE Announces Spin-Off, Merger of Non-Core Software Assets with Micro Focus
- Transaction Value $8.8 Billion
- Hewlett Packard Enterprise (NYSE: HPE) announced today that it was spinning off its non-core software assets, merging them with Micro Focus (LSE: MCRO).
- The assets include HPE’s Application Delivery Management, Big Data, Enterprise Security, Information Management & Governance and IT Operations Management businesses. Including 50.1% ownership of the new combined company by HPE shareholders and a cash payment of $2.5 billion to HPE, the transaction will be valued at $8.8 billion.
- Micro Focus, a global software business based in the UK, will emerge from the transaction with annual revenues of approximately $4.5 billion (up from $1.4 billion). It will have approximately 4,000 salespeople worldwide and expects to improve the margin on HPE’s software assets by 20 percentage points within 3 years post-transaction.
- The transaction is expected to be tax-free for HPE, which will incur one-time separation costs of approximately $700 million.
HPE Further Refines Its Focus
- Closing the Books: This transaction finally divests HPE’s investment in former British software maker Autonomy Corp, acquired in 2011 for $11 billion but written down significantly shortly thereafter in what would become one of the company’s most publicized failures.
- Running a Familiar Play: This divestiture is largely reminiscent of HPE’s spin-off of its consulting services division this past May, which merged with CSC for $8.5 billion to form the third-largest IT services business globally. In both instances, HPE has maneuvered to focus on its core business areas while retaining significant equity in its specialized transaction counterparts.
- Culminating Months of Rumors: Preliminary news of a potential sale first emerged in early July, with industry observers noting the company’s inability to achieve growth despite spending $20 billion on software businesses. Possible suitors identified in recent articles include Vista Equity Partners, Carlyle Group, TPG Capital and Thoma Bravo, whose software portfolio includes Compuware and Dynatrace which presented significant cost savings opportunities.
- Continuing to Drill Down on Core Capabilities: HPE will retain some software assets, especially those including software-defined networking that complement HPE’s network hardware business. Post-transaction, HPE expects annual revenues of approximately $28 billion, largely focused on data-center operations, hybrid cloud, storage and computing.
For more information about this transaction, click here to read the press release.
martinwolf was not the advisor in this transaction.