London Stock Exchange (LSE)-listed legacy systems facilitator Micro Focus has struck a deal to merge with US-based enterprise software company The Attachmate Group for an estimated $1.2 billion in share capital.
The agreement, announced on September 15, is expected to result in a new entity that will relist on the LSE, and will claim combined revenues of $1.4 billion. Attachmate's subsidiaries, NetIQ, Novell — which the company acquired in 2011 — and SUSE are included in the merger.
The merger, which is expected to occur in November 2014, constitutes a reverse takeover under the rules of the London Stock Exchange, on which Micro Focus is listed, and remains subject to a number of conditions, including the publication of a prospectus, applicable regulatory and antitrust approvals, and Micro Focus shareholder approval.
The deal will see Micro Focus acquire the entire issued share capital of Attachmate, in exchange for the issue of approximately 86.60 million ordinary shares to Attachmate's parent company, Wizard Parent LLC, an investment group, which will hold Attachmate's 40 percent share of the new entity.
Based on Micro Focus' closing share price as at September 12 of 842.5p, the value of the shares to be allotted to Attachmate's parent company is approximately £729.6 million, which, together with Attachmate's net debt at July 31, 2014, of $1.17 billion, will result in an enterprise value to the transaction of $2.35 billion before costs.
In the year ending March 2014, Attachmate generated revenues of $956.8 million and underlying adjusted EBITDA of $312.8 million.
Micro Focus said in a statement that the merger represented a significant increase in its scale and breadth, combining the company's product franchises with The Attachmate Group product portfolios serving "adjacent and complementary market segments".
"There is compelling rationale behind this Merger," said Micro Focus executive chairman Kevin Loosemore. "Both companies are well-established enterprise software vendors operating at a global scale with a presence in all significant international markets.
"Both hold a portfolio of software solutions which address specific aspects of the infrastructure software requirements of a substantial installed base of large enterprise customers, with no material customer concentration or direct overlap; and both Attachmate and Micro Focus' respective product groups are predominantly mature solution sets which are embedded within the IT infrastructures of large corporate customers.
"The board believes that the merger will deliver a more attractive and expanded product offer to customers. The enlarged group will provide choices as organisations address increasingly complex IT challenges and strive to preserve business logic and data as they bridge from the old and the new to exploit new technology trends, such as the cloud or mobility," he said.
The Attachmate Group said in a statement that the resulting global entity would operate in all significant international markets, and deliver products in many technology segments and capabilities across the full end-to-end software stack of infrastructure software.
The company claims that the post-merger entity would benefit from a "top three global market position" in a number of key segments, including off-mainframe COBOL, mainframe modernisation, host connectivity, and Linux operating systems.
"This merger between the Attachmate Group and Micro Focus will result in a greater breadth of solutions, extensive global presence, and significant financial strength," said The Attachmate Group's chairman and CEO Jeff Hawn.
"The combined company will be even better able to help customers address their business and IT challenges in light of increasing complexity, change, and risk," he said.