Hewlett-Packard Enterprise Sells Software Unit

Hewlett-Packard’s Enterprise’s software unit has officially been sold in an $8.8 billion deal. Micro Focus is the other party to the transaction. The new combined company will continue under the name Micro Focus. The transaction is expected to be completed by the second half of HPE’s fiscal year 2017.

The assets included in the transaction includes HPE’s Application Delivery Management, Big Data, Enterprise Security, Information Management & Governance and IT Operations Management businesses. Those assets are highly complementary to Micro Focus’ portfolio. Micro Focus expects to improve the margin on HPE’s software assets by approximately 20 percentage points by the end of the third full financial year following the closing of the transaction.

The transaction will create one of the world’s largest pure-play enterprise software companies. The combination of HPE’s software assets with Micro Focus is expected to create a business with annual revenues of approximately $4.5 billion. The combined company will have nearly 4,000 salespeople worldwide and considerable R&D resources.

HPE shareholders will have 50.1 percent ownership of the new combined company. The shareholder’s equity stake in Micro Focus is valued at approximately $6.3 billion based on the closing price of Micro Focus shares as of market close on September 5, 2016. The deal also includes a $2.5 billion cash payment to HPE. The transaction is expected to be tax-free to HPE.

Meg Whitman, President and Chief Executive Officer of HPE, said in a statement, “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.”

The combined company will be led by Kevin Loosemore, Executive Chairman of Micro Focus.
Mike Phillips will serve as Chief Financial Officer. An HPE senior executive will serve on the board of directors of the combined company and HPE will nominate 50 percent of the independent directors to the combined company’s board.

CEO Meg Whitman has embraced the strategy of spinning off units. In May, a plan to spin out the company’s troubled consulting services unit was announced. The company partnered with CSC, a former rival in the industry, for the deal.

HPE and Micro Focus are also planning a commercial partnership that will name SUSE as HPE’s preferred Linux partner. The deal will bring HPE’s Helion OpenStack and Stackato solutions together with SUSE’s OpenStack expertise.