HPE to Merge Non-Core Software Assets With Micro Focus in $8.8B Deal; Meg Whitman Comments

acquisition, mergerHewlett Packard Enterprise (NYSE: HPE) has announced plans to merge its non-core software assets with global enterprise software firm Micro Focus under an $8.8 billion deal that is expected to be tax-free to HPE.

HPE said Wednesday both companies expect the combination of HPE’s big data, application delivery management, enterprise security, information technology operations management and information management and governance businesses with Micro Focus to conclude by the second half of fiscal year 2017.

HPE and Micro Focus said they expect the merger to create a software firm with nearly 4, 000 sales personnel worldwide and approximately $4.5 billion in annual revenue.

Kevin Loosemore, executive chairman of Micro Focus, will lead the combined company; and Mike Phillips, chief financial officer at Micro Focus, will serve as CFO.

The combined firm will pursue growth in product areas such as security, IT operations, open source, information management, cloud and big data analytics, HPE noted.

The transaction entitles HPE to nominate half of the independent directors to the combined firm’s board of directors as well as appoint an HPE senior executive to the board, HPE said.

HPE said the spin-off of its software assets is part of the company’s strategy to leverage its software-defined servers, networking, storage and converged infrastructure portfolio in order to focus on the delivery of hybrid IT platforms.

“Services and software remain key enablers of HPE’s go-forward strategy, ” said Meg Whitman, president and CEO of HPE.

Whitman said HPE will work to “double down on the software capabilities” that support the company’s infrastructure platforms and play a role in cloud environments.

HPE will receive a cash payment of $2.5 billion and its stockholders will own 50.1 percent of the equity of the combined firm worth approximately $6.3 billion.

HPE said it expects to incur approximately $700 million in after-tax separation costs from the transaction, which is subject to closing conditions and regulatory approvals.

HPE and Micro Focus said they also plan to forge a partnership with software company SUSE to provide HPE clients with enterprise hybrid cloud offerings and make SUSE as HPE’s preferred Linux partner.

HPE will combine its Helion OpenStack and Stackato platforms with SUSE’s OpenStack experience through the partnership.

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