Fears over £7bn deal spark share fire sale

A FIRE sale of shares saw more than £500m wiped off Britain’s biggest listed tech firm after it revealed a slump in sales at the software business it is buying for £7bn from US giant HP.

Investors were spooked after Micro Focus announced that revenues at HPE Software had dropped about 10pc on last year in the quarter to April 30.

This was driven by a decline in its licence and professional services divisions.

After initially falling by around 12pc in morning trading, shares recovered and closed down 5.7pc, or 149p, to 2490p.

But the morning sale underlined fears about the giant reverse takeover deal by Micro Focus, which has been heralded for being a UK firm making deals overseas since the fall in the pound.

Fears are growing about the health of the Hewlett Packard business as it contains the remaining assets of another former FTSE 100 software firm Autonomy, which it bought for £9bn in 2011. However, this deal was beset by scandal and HP ended up writing down threequarters of the firm’s value.

It triggered accusations of impropriety on the part of the Autonomy management.

Lorne Daniel, a tech analyst with Finn Cap, said: ‘You would have thought Micro Focus, when buying the business, might have learned that the holes can be deeper than they look, but it seemed happy about making a big splash.’ Kevin Loosemore, 57, chairman of Micro Focus, stands to make millions from the proposed merger.

He said: ‘While the short-term decline in licence is disappointing, it is not unusual given the level of change being undertaken.’

Oxford graduate Loosemore currently holds around £15m of shares in Micro Focus.

The tech firm began 40 years ago and has had a stellar rise. Based in Newbury, Berkshire, the business has built a reputation for buying unloved assets from other firms and extracting value from them.

The IT consulting company employs 4,500 people in 80 offices around the world.

The update sparked an almost 12pc collapse in the company’s share price, at one point wiping £502m off the value of the firm.

The warning has an echo of a 2010 crash when the company lost a third of its value after a profit warning linked to two US acquisitions it had made.

The takeover of HPE’s software arm is the latest in a string of acquisitions after it bought Serena Software in March last year for £405m.

However, while yesterday’s hiccup in the company’s stock price will concern some investors, shares remain up more than 25pc since Micro Focus announced the deal in September.

On its own trading, Micro Focus said it expects revenues to remain flat or fall by up to 2pc for the full year to April 30.

The firm is awaiting shareholder approval on the deal at a general meeting on May 26.