Micro Focus Bucks M&A Trend With £7bn Hewlett Packard Megadeal

One of Britain's biggest independent technology companies is to unveil a multi-billion pound deal to buy a chunk of Hewlett Packard (NYSE: HPQ - news) ’s software business in a move that will mark a rare exception to the usual flow of transatlantic takeovers.

Sky News has learnt that Micro Focus, which has a market value of about £4.45bn, will announce what insiders called a "transformational deal" before the stock market opens for trading on Thursday.

Sources said the target of the deal was the software division of Hewlett Packard Enterprise (HPE), which was recently reported to have put a $10bn (£7.5bn) price-tag on the unit.

Micro Focus is understood to have agreed to pay well over $8bn (£6bn) for the HPE operation, which makes software to help manage business operations, and possibly as much as £7bn.

The British company is also said to have agreed to a deal under which HPE, which was split from the PC-maker Hewlett-Packard by chief executive Meg Whitman last year, will become a big shareholder in the London-listed company.

It was unclear whether Micro Focus intended to acquire the entirety of the HPE software business.

A deal is expected to be unveiled in the US at the same time that HPE announces its quarterly earnings after the close of trading on Wall Street on Wednesday, according to sources.

If completed, the takeover would mean some of the assets that were formerly part of Autonomy, the British software group, being reacquired by a London-listed company.

HP (Frankfurt: 7HP.F - news) 's takeover of Autonomy in 2011 was one of the most disastrous takeover deals on record, led to the break-up of HP and resulted in a wave of litigation between the two sides which remains unresolved.

Key details of the Micro Focus deal, including the price it plans to pay for the business and how large a stake in itself would be taken by HPE, were unclear.

Micro Focus is one of Britain's biggest technology companies, and coincidentally is replacing ARM Holdings (LSE: ARM.L - news) - the chip designer whose £24bn sale to Japan's Softbank (Swiss: SOFB.SW - news) was completed this week - in the FTSE-100 index.

The London-listed company secured approval from shareholders at its most recent annual meeting to pursue large acquisitions, having made a success of two earlier deals: the $1.2bn (£900m) takeover of business software group Attachmate in 2014; and the purchase of Serena Software earlier this year for $540m (£405m), which was partly funded through a placing with key shareholders.

Since 2011, Micros Focus has produced average annual shareholder returns of 39%, a performance which has bolstered investors' favourable view of the company's management team.

Its shares have risen by 60% over the last year.

The size of the deal - which some sources badged as a merger - is striking, and will be one of the largest overseas takeovers by a British company for several years.

It will come as Theresa May's Government prepares a new public interest test for foreign takeovers of UK-based companies, with leading politicians including Lord Myners, the former City Minister, complaining that the ARM deal should have been subject to greater scrutiny.

Micro Focus declined to comment on Wednesday, while HP could not be reached for comment.