Shares in Autonomy soared after Hewlett-Packard announced an $11bn (£6.7bn) deal to buy the UK’s largest software company in the latest takeover of a FTSE 100 company by a foreign acquirer.

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.

On Friday morning Autonomy’s share rose 79 per cent to hit HP’s £25.50-a-share cash offer price, before falling back slightly to £24.93 in late morning trade.

Analysts were in agreement that the deal, which is being recommended by Autonomy’s board, offered excellent value for Autonomy shareholders but were more sceptical about the benefits for HP.

Paul Morland, a tech analyst at Peel Hunt, called it an “amazing” premium for a company whose earnings grew by just 6 per cent in the first half of the year. “It doesn’t get any better than this, and holders should accept the offer before HP changes its mind. HP’s CEO used to be in charge at SAP, so he should understand software, but this bid seems to defy logic. We believe HP shareholders should be worried.”

US rivals could seek to make a counter offer for Autonomy. Oracle, IBM and EMC are all licensees of Autonomy’s Idol technology. “However, Mike Lynch’s ongoing contribution will probably be deemed vital, making gatecrashers less likely. Any rival offer would need to be at a substantial premium to that from HP,” analysts at Jefferies said in a note.

The acquisition was announced on Thursday as HP revealed disappointing quarterly earnings along with plans to spin off its personal computer business. It also said it was cancelling its attempt to compete with Apple iPad.

Founded in Cambridge in 1996 by Mike Lynch, Autonomy has been one of the stand-out successes in UK technology on the global stage – a pioneer in creating search software that can make sense of complex, unstructured information.

Mr Lynch still holds an 8 per cent stake in the company, worth more than $800m at the takeover price, not including stock options. He will continue to lead Autonomy within HP after the deal, reporting directly to Leo Apotheker, HP’s chief executive.

Autonomy’s 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.”

The business department in June launched a review into the effect of equity markets on the competitiveness of Britain’s business.

Business secretary Vince Cable will want to avoid a repeat of Kraft’s purchase last year of Cadbury, the chocolate manufacturer, which led to the rapid closure of a Bristol factory to the fury of unions and MPs.

HP investors alarmed at the 79 per cent premium for Autonomy and a much-reduced financial outlook from the Silicon Valley company sent HP shares down 15 per cent in regular and after-hours trading to their lowest point in years.

Autonomy and HP agreed a 1 per cent break fee to the UK company if the deal falls through. At £25.50 a share, the acquisition price would be equivalent to about 23 times forecast 2011 earnings before interest, tax, depreciation and amortisation for the company, according to consensus estimates.

Though HP has fared better in PCs than many of its rivals, the margins in that business remain much lower than in software and services.

Barclays Capital and Perella Weinberg are advising HP, with legal counsel from Skadden Arps and Gibson Dunn. Advisers to autonomy were led by Qatalyst, along with Citi, Goldman Sachs, Merrill Lynch International, UBS and JPMorgan.

Reporting by Tim Bradshaw, Joseph Menn, Anousha Sakoui, Helen Thomas, Richard Waters, Jim Pickard and Neil Hume

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