HPE sells its software business to Micro Focus for $8.8 billion

Hewlett Packard Enterprise (HPE) has announced plans for a spin-off and merger of its non-core software assets with Micro Focus. The transaction valued at approximately $8.8 billion.

The merger of these software assets -- which includes HPE's Application Delivery Management, Big Data, Enterprise Security, Information Management & Governance and IT Operations Management businesses -- and Micro Focus' highly complementary portfolio will create one of the world's largest pure-play software companies. The new company will have the global footprint, agility and financial strength to drive software innovation across a comprehensive array of products. The strategic move enables a standalone HPE to realize its vision of being the provider of hybrid IT, built on the secure, next-generation, software-defined infrastructure that will run customers' data centers today, connecting them to multi-cloud environments tomorrow, and enable the emerging intelligent edge that will power campus, branch and IoT applications for decades to come.

"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 & Chief Executive Officer, HPE.

Partnership with SUSE

HPE and Micro Focus have announced plans for a commercial partnership that will name SUSE as HPE's preferred Linux partner and will bring together HPE's Helion OpenStack and Stackato solutions with SUSE's OpenStack expertise to provide enterprise-grade hybrid cloud offerings for HPE customers.

Positioning HPE for the Future

With approximately $28 billion in annual revenue, the future HPE will have significant scale, a diversified portfolio and a global footprint to meet the evolving needs of its customers and partners.

The company will be a leader in delivering secure hybrid IT solutions, leveraging its world-class portfolio of software-defined servers, storage, networking and converged infrastructure. HPE's newly-created Software-Defined and Cloud business will build upon key software assets like HPE OneView and the Helion Cloud platform to deliver software-defined Hybrid IT solutions like Synergy – HPE's composable infrastructure offering that enables customers to operate their workloads with unprecedented speed and agility.

HPE will also redefine IT at the edge with leading campus, mobility and IoT offerings. The company's "edge" solutions enable customers to quickly and securely gain insights from the growing amount of data processed outside of the data center. And through Aruba, HPE delivers the industry's leading platform to enable an innovative user and workforce experience anywhere.

Wrapped around this portfolio is HPE's world-class Technology Services capability that helps customers transform their IT environment and take advantage of opportunities in emerging areas like campus, branch and industrial IoT programs. Technology Services comprises about 22,000 service professionals and will represent approximately 25 per cent of the company's revenue after the spin-off of its Enterprise Services business and non-core software assets.

"Services and Software remain key enablers of HPE's go-forward strategy," continued Whitman. "HPE will double down on the software capabilities that power and differentiate our infrastructure solutions and are critical in a cloud environment."

Transaction valued at $8.8 billion

At the completion of the transaction, currently expected to occur by the second half of HPE's fiscal year 2017, HPE shareholders will own American Depositary Shares ("ADSs") representing 50.1% of the equity of the new combined company (which will continue under the name Micro Focus) on a fully diluted basis. This 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. HPE will also receive a $2.5-billion cash payment prior to the completion of the merger, resulting in total consideration to HPE and its shareholders of approximately $8.8 billion. The transaction is expected to be tax-free to HPE.

An HPE senior executive will serve on the board of directors of the combined company. In addition, HPE will nominate 50% of the independent directors to the combined company's board.

To recognize the $8.8 billion of value and unlock a more attractive financial profile for HPE going forward, HPE expects to incur one-time after-tax separation costs of approximately $700 million, with the vast majority occurring in fiscal year 2017. The transaction is subject to customary closing conditions, including the receipt of required regulatory approvals and the approval of the transaction by Micro Focus' shareholders.