British upstart snapping up the giants of Silicon Valley

As Micro Focus bids £6.6bn for US rival . . .

DURING the late 1960s the Santa Clara valley and the neighbouring city of San Jose in California were home to fewer than half a million people.

But in these sleepy communities, a new type of business was springing up tapping into a sudden interest in computers.

It was here that William Hewlett and David Packard, working initially from their garage in Palo Alto had begun a computer company. By 1968 the firm which had grown steadily, and was suddenly to strike gold when it developed its idea for a computer that any ordinary homeowner could have. The Hewlett Packard 9100A, dubbed the desktop calculator and resembling a supermarket till, cost $5,000. The success of this model was the making of Hewlett Packard.

It marked the start of the rise of region – which today is better known as Silicon Valley and is home to more than three million people.

Almost a decade after the launch of this first desktop, the boom led Brian Reynolds and Paul O’Grady to came up with their own idea across the Atlantic in Notting Hill, London.

The duo found a way to allow companies to use their old, giant mainframe systems on these newer, ‘micro- computers’ made by firms such as Hewlett Packard.

Their genius was spotting that this quite dull idea was something businesses would need. Four decades later their firm Micro Focus was turning over £936m a year and would turn history on its head by offering £6.6bn to takeover the company which inspired its founders.

Yesterday, Micro Focus shares climbed 14.73pc after its deal for the software arm of Hewlett Packard Enterprises was announced.

It will automatically trebled the size of the Berkshire-based business, and will push it inside the top 40 of London’s top flight.

Unlike many of the world’s technology giants such as Apple and Google – which are constantly competing to invent the next global seller – Micro Focus continues with its original aim.

It creates software to allow big businesses to keep their existing computer systems going as well as enabling them to introduce new technology if they want. This strategy has paid off. Micro Focus now employs 4,500 people across 80 global locations and is worth about £4.4bn.

In 1996 Reynolds and O’Grady stepped down as chairman and chief executive respectively – taking £8m away with them. Today it is led by Kevin Loosemore, executive chairman, who was appointed to the top post in 2011 and took home a total pay package of £4.2m last year.

Stephen Murdoch, chief executive, took home £ 884,000 last year.

Under their stewardship Micro Focus has expanded by snapping up rivals in the US.

It bought Serena Software in March this year for £405m, and in 2014 it bought Texas- based Attachmate Group for £900m.

Its latest deal is with HP Enterprise, which was spun off from Hewlett Packard in 2015 after the takeover of British tech firm Autonomy in 2011 – widely regarded as one of the most disastrous takeovers in corporate history.

Ironically this deal will see the return of Autonomy’s business to the UK.

Hewlett Packard sued two former Autonomy executives for £3.8bn alleging they misrepresented the financial health of the company before the takeover. A UK lawsuit into the deal is expected to start next year.

However, Loosemore assured shareholders it would not be responsible for the lawsuit.

He said: ‘They are continuing with the lawsuit and we don’t have anything to do with that.’

As part of the takeover, £300m will be returned to Micro Focus shareholders, which Loosemore said was the company’s main focus, rather than leading the UK tech scene.

Major shareholders in the business today include Fidelity Management, Old Mutual, and M&G Investments.

‘We run a business and our job is to serve our shareholders, and we do that to the best of our ability,’ said Loosemore.

‘We would love to see a growing UK tech scene, it would be fantastic, but actually that’s not something we can do or particularly influence.

‘If the deal can encourage people that’s fantastic, but we just aim to be a successful company in the UK market.’

And this mature market is where Micro Focus continues to see further growth – with major companies paying a high price to extend the life of their software.

‘Most companies are interested in new technology that is coming out,’ said Loosemore. ‘But at the same time they have a lot of old stuff they have been running their business with for 15-20 years.

‘We help them link that old stuff to the new stuff so they don’t have to throw it all away and start again.’

‘We are the most efficient operator in this space.’

Over time, he said there would be job losses as a result of the deal, adding: ‘We go through every line of the businesses we acquire and work out what the optimum way to run it is.’

But while HP Enterprise shareholders will retain 50.1pc in the business, Loosemore has insisted Micro Focus would be ‘in control’.

The management team will continue to be made up of Micro Focus executives, with one HP Enterprise exec appointed to the board.

Shares in Micro Focus leapt up yesterday as the market reacted to the news of a bonanza for shareholders. It was a welcome boost for British technology which had seen the jewel in the country’s crown – ARM Holdings – sold to Japan’s Soft Bank in a £24bn deal.

Yesterday Loosemore hinted there could be more acquisitions to come from Micro Focus, adding: ‘We believe the infrastructure market in software is mature and will consolidate. The way to win in a mature market is to scale up and optimise efficiency.’

HP Enterprise was split from Hewlett Packard – once one of the most powerful technology companies in the world and credited for giving birth to Silicon Valley.

But its range of personal computers struggled to compete with the rise of smart phones, and its split from HP Enterprise was aimed to create two, more agile companies.

Shares in Micro Focus rose 14.73pc, or 288p to 2243p.