Micro Focus to buy The Attachmate Group in all-share deal

* Both companies help corporates update IT systems

* Reverse takeover will see group re-listed in London

* Micro Focus shares up 11 pct (Changes slug, adds exec chairman, analyst comments, share reaction)

By Paul Sandle

LONDON, Sept 15 (Reuters) - British mainframe computer specialist Micro Focus International (LSE: MCRO.L - news) is to buy privately-owned U.S. rival The Attachmate Group Inc in an all-share deal valuing the firms' combined capital and debt at $2.35 billion.

Micro Focus said on Monday that following the reverse takeover, its shareholders would own about 60 percent of the equity in the new group which will be re-listed in London.

The two groups serve major corporate clients such as banks, retailers and airlines that run mainframe computers, helping them modernise the technology so that applications and databases can be accessed by newer systems, such as cloud technology.

"We aim to help customers sort out some of the challenges of their older IT systems and link them to new technology, so they can get more return on their current investments," Micro Focus Executive Chairman Kevin Loosemore told Reuters.

"This gives us a broader set of products to deliver that, and it also exposes us to some faster growing markets," he said in a telephone interview.

Loosemore said Micro Focus had been talking on and off with The Attachmate Group for about three years before finally agreeing a deal.

The owners of Houston, Texas-based Attachmate include the Francisco Partners Funds, the Golden Gate Funds, the Thoma Bravo Funds and the Elliott Management Fund.

Loosemore, who retains his position in the combined group, said the deal would lift Micro Focus's revenue to about $1.4 billion from about $430 million, and its underlying core earnings to more than $500 million from $196 million.

He said Micro Focus was buying Attachmate for about 7.5 times core earnings, a significant discount on the 11.3 times earnings Micro Focus trades at.

Share (Frankfurt: 5CI.F - news) in Micro Focus jumped to an all time high of 935 pence, up 11 percent, following the announcement of the deal.

Analyst George O'Connor at Panmure Gordon, who has a "buy" rating on the shares, said the deal was a big step towards Micro Focus becoming an "all applications modernisation company".

"The acquisition has the same 'DNA' - it is a large systems enterprise software company, with high profitability and is cash generative," he added.

The two companies' net debt, comprising $233 million on the part of the British company and $1.17 billion on the part of Attachment, will be refinanced as part of the deal, Loosemore said. The combined group's debt ratio would increase to about 3.3 earnings, but this would be reduced to Micro Focus's long-term debt target of 2.5 times in about two years, he said.

Micro Focus also said it would still return about 60 pence a share to investors, as announced in August.

Micro Focus was advised by Numis and Attachment was advised by Morgan Stanley (Xetra: 885836 - news) . (Editing by Karolin Schaps and Mark Potter)