Hewlett Packard Enterprise will spin off and merge its non-core software assets with Britain's Micro Focus International in a deal worth US$8.8 billion, the companies said on Wednesday.
The move is part of HPE chief executive Meg Whitman's plans to shift HPE's strategy to a few key areas such as networking, storage and technology services since the company separated last year from computer and printer maker HP Inc.
"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," Whitman said in a statement.
The deal with Micro Focus, a multinational software company based in Newbury, United Kingdom, was announced along with HPE's latest quarterly earnings. In the third quarter, HPE reported net revenue of US$12.2 billion, down 6 percent from US$13.1 billion a year earlier.
The deal comes on the same day Dell and EMC completed their merger in a deal that unites two of HPE's biggest rivals.
The transaction is expected to be tax free to HPE. Micro Focus will pay US$2.5 billion in cash to HPE, while HPE shareholders will own 50.1 percent of the combined company that will operate under the name Micro Focus and be run by its executives. HP said it would pay US$700 million in one-time costs related to the separation of the assets.
Autonomy goes back to Britain
In the deal, HPE is sending one of the British firms it acquired back to where it started.
HPE acquired part of its software portfolio through the US$10.3 billion purchase of Britain's Autonomy Corp in 2011. HP's US$11 billion purchase of Autonomy was supposed to form the central part of the US group's move into software.
HP later wrote off three-quarters of the company's value, accusing Autonomy executives of financial mismanagement.
Other HPE assets that will be merged include software for application delivery management, big data, enterprise security, information management and governance and IT Operations management businesses.
HPE's software revenue growth has been challenged by a market shift toward cloud subscription services. It had earlier been in talks with private equity firms to sell the software unit for between US$8 billion and US$10 billion.
Micro Focus, with a market capitalisation of £4.45 billion (A$7.7 billion), has been bulking up on acquisitions to boost growth, and this would be its largest deal to date. Earlier this year, Micro Focus acquired US firm Serena Software for US$540 million.
Kevin Loosemore, executive chairman of Micro Focus, said that "the time is right for consolidation in the infrastructure software market and this proposed merger will create one of the leading players in this space".
In a post on LinkedIn, HPE chief executive Meg Whitman said it was another example of the vendor's "bold moves to focus our portfolio", alongside the sale of TippingPoint and its decision to spin-off and merge HPE's Enterprise Services business with CSC.
"The combination of HPE’s application delivery management, big data, enterprise security, information management and governance and IT operations management businesses with Micro Focus will create one of the world’s largest pure-play software companies," she said.
"Micro Focus' approach to managing both growing and mature software assets will ensure higher levels of investment in growth areas like big data analytics and security, while maintaining a stable platform for mission-critical software products that customers rely on."