Alarm as Micro Focus target HPE suffers hit

Concerns have intensified about Micro Focus’s £7 billion takeover of parts of Hewlett Packard Enterprise, as the British software giant shocked investors with a slump in revenues at the business it is about to buy.

Micro Focus said estimates reveal revenues at HPE’s software business fell 10% in the latest quarter, with licensing and professional services largely to blame.

HPE’s clients are thought to have held back from upgrading their software while their supplier is being sold.

The news caused Micro Focus shares to fall 301p, or 11.4%, to 2338p as investors overlooked an in-line trading update for the year.

Micro Focus’s executive chairman Kevin Loosemore said: “Though the short-term decline in licence is disappointing it is not unusual given the level of change being undertaken.”

Analysts remained upbeat about the deal. Kevin Ashton at Cantor Fitzgerald said: “Of course the Micro Focus playbook is about margin not growth and though this decline looks optically high, my sense is it will pay to sit tight and trust management to wring value out of this acquisition.”

The reverse takeover, which propelled Micro Focus into the FTSE 100, is expected to be completed in September. Former HPE executive, Chris Hsu, will take over as Micro Focus’s chief executive.