HP Enterprise strikes $8.8B deal with Micro Focus, to spin off its software business

Hewlett Packard Enterprise yesterday announced the closing of an $8.8 billion deal with Micro Focus in which it will spin off and merge most of its software operations with the British company. In the transaction, HPE shareholders acquired Micro Focus shares, currently valued at about $6.3 billion, and now own 50.1 percent of the new combined entity.

The transaction is expected to close by the second half of HPE's fiscal year 2017, and will be tax free for the company.

The new entity will be led by Kevin Loosemore, Executive Chairman of Micro Focus, and Mike Phillips will serve as Chief Financial Officer.

The combined enterprise software company will include HPE's Application Delivery Management, Big Data, Enterprise Security, Information Management & Governance, and IT Operations Management businesses, along with Micro Focus' portfolio. Big data and security will be the key areas of interest for the new entity.

The company will have nearly 4,000 salespeople and strong R&D capabilities so as to build strong product offerings.

Additionally, HPE and Micro Focus also announced plans for a commercial partnership that will name SUSE, an offering of Micro Focus, as HPE's preferred Linux partner and will bring together HPE's Helion OpenStack and Stackato solutions with SUSE's OpenStack expertise.

Sensibilities of the deal

The deal will help HPE enhance its hybrid IT solutions, built on secure, next-generation, software-defined infrastructure. "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," said Meg Whitman, President and Chief Executive Officer of HPE.

This deal is part of Meg Whitman's plans to shift HPE's strategy to a few key areas such as networking, storage and technology services, after the company’s separation from computer and printer maker HP Inc. last year.

According to the company’s statement, the combined entity is expected to create a business with annual revenues of approximately $4.5 billion. Micro Focus expects to improve the margin on HPE's software assets by approximately 20 percent by the end of the third full financial year.

HP had acquired part of its software portfolio for $10.3 billion by acquiring Britain's Autonomy Corp Plc in 2011. HP's purchase of Autonomy was supposed to form the central part of the US group's move into software. In the third quarter, HPE reported a net revenue of $12.2 billion, down by 6 percent from $13.1 billion last year.

Commenting on future plans and HP’s software assets, Meg Whitman said in a blogpost,

“I want to be crystal clear– HPE is not getting out of software. Software is still a key enabler of our go-forward strategy, but we need the right assets to win in our target markets. Moving forward, we will double down on the software capabilities that power and differentiate our infrastructure solutions and are critical in a cloud environment.”

She also added, “Our newly created Software-Defined and Cloud business will build upon key software assets like OneView and the Helion Cloud platform to deliver software-defined hybrid IT solutions like Synergy, the industry’s first composable infrastructure, and our other hyper-converged systems. Since OneView’s launch in 2013, we’ve sold nearly 500,000 licenses and have a growing partner ecosystem, including Docker, Chef, Turbonomic and SaltStack.”