As part of a major overhaul of its business, California-based Hewlett-Packard (HP) has agreed to buy Autonomy Corp, UK’s software company for $ 10.3 billion.
Autonomy shareholders will receive $ 42.11 a share, which translates to a 64% premium over the closing price on Thursday. Ironically, HP’s shares fell by 6% on the New York Stock Exchange on Thursday evening. In a major shift, HP is looking to sell-off its PC division and discontinue products that run on WebOS software.
Leo Apotheker, who took over as chief executive officer of HP in November is looking to lessen the company’s dependence on PCs as consumer demand wanes and he is keen on expanding the cloud services, which help customers handle computing tasks over the Internet.
HP’s results have suffered due to the diminishing demand for PCs. In a statement on Thursday, HP said that the sales for the current period will be in the range of 32 billion which is short of the 34 billion average estimated by analysts.
Michael Gartenberg, analyst at Gartner Inc., Connecticut says, “Their focus is on being more of a software and services company and not dependent on the commodity-driven hardware business.”
Based in Cambridge, England, Autonomy will give HP software that searches a broad range of data including e-mails, music, video and posts on social networks such as Facebook.
Branding HP’s move as a volte-face, Time Daniels, strategist at Olivetree Securities Ltd., London said, “ Autonomy is a leader in unstructured data which means the data is not in the form of spreadsheets or word documents.”
Autonomy offers programs used in database search. Its customers include Coca-Cola Co., Nestle SA and the US Securities Exchange Commission. The company was founded by CEO Mike Lynch in 1996, who now holds about 8% of the stock which amounts to more that $ 800 million at the takeover price. After the deal Lynch will continue to lead Autonomy and report directly to Apotheker.
Amidst disappointing sales of the tablets that run Web OS, HP has also decided to abandon the mobile software it acquired last year from the purchase of smartphone maker Palm Inc. Commenting on the decision Apotheker said, “Fixing Web OS would have taken capital that could be used better elsewhere.” The company will record a one-time charge of about $ 1 billion in the fourth fiscal quarter due to the discontinuance of Web OS devices, its regulatory filing revealed.
Bloomberg data shows that Hewlett-Packard is paying 24 times Autonomy’s trailing earnings before interest, taxes, depreciation and amortization, compared with a median of 17 times Ebitda in 10 comparable deals.
Below are some key details of the acquisition:
- Autonomy shareholders will be entitled to receive $ 42.11 in cash per share.
- The deal is at a premium of nearly 64% percent to the company’s closing price on Thursday.
- HP has irrevocable Undertakings from Autonomy’s board, which owns 9.12 percent of the company’s equity.
- Autonomy will pay HP 1 per cent of the offer price, or about $117 million, if its Board recommends another offer.
- HP expects the deal to add to non-GAAP earnings per share in first full year following completion.
- The companies expect to complete the deal by the end of 2011.
- Mike Lynch, co-founder and CEO of Autonomy will continue to lead the company and report directly to HP CEO Leo Apotheker.
- Autonomy will continue to operate as a separate business.
The takeover deal which is likely to be completed by end of 2011 is being brokered by Barclays Plc and Perella Weinberg Partners LP, who are advising Hewlett-Packard on the transaction. For Autonomy, the leading financial advisor is Qatalyst Partners and is also being advised by Citigroup Inc., Goldman Sachs Group Inc., Bank of America Corp., UBS AG and JPMorgan Chase & Co.
Autonomy’s imminent takeover has already provoked political concerns over the foreign acquisition of another big UK company. John Denham, shadow business secretary said, “There is no doubt that the British economy needs a critical mass of clearly British-owned, domiciled and led companies if we’re not going to be all too vulnerable to shifts in the world economy.”
If completed, the deal would be the largest in Europe’s IT sector and the second-largest software deal after Symantec secured Veritas for $13.5bn in 2005.