Micro Focus shares plunge as chief quits after six months
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Micro Focus lost almost half its market value on Monday in its sharpest one-day drop, after signalling that it is continuing to struggle with integrating its $8.8bn reverse takeover of Hewlett Packard Enterprise’s software assets.
The UK group, which specialises in software tools and IT management services, also announced the departure of chief executive Chris Hsu just six months after his appointment. He will be replaced by Stephen Murdoch, chief operating officer.
Kevin Loosemore, executive chairman, said the company had underestimated the cultural differences with HPE and struggled to motivate sales staff following the merger.
“Collectively we haven’t done a good job executing in the last period,” he said. “This is a bigger acquisition [than previous purchases] and there are lots of challenges. Clearly in some cases we underestimated some of those challenges, so shame on us.”
Micro Focus warned on Monday that revenues would fall 6 per cent to 9 per cent in the year to October, a significant downgrade to the 2 per cent to 4 per cent decline it had predicted at the start of the year.
Shares were down 46 per cent at £8.73 in late afternoon.
Micro Focus has snapped up a number of legacy brands over the past decade but the HPE takeover was its largest by a wide margin, quadrupling the size of the business.
Mr Loosemore’s plan was to slash costs and improve performance at the newly acquired business with the aim of doubling the combined group’s operating margin from 21 per cent to at least 45 per cent in three years.
However, in an interview with the Financial Times last year, Mr Hsu pointed to a stronger emphasis on investing for growth.
Mr Loosemore reiterated on Monday that there had been no difference in strategy between the two leaders.
As part of the takeover, Micro Focus also acquired Autonomy assets that were bought by HP in 2011, which have since triggered billions of dollars in writedowns and allegations by HP of financial misconduct on the part of Autonomy management, which they have strongly denied. However, Autonomy accounts for less than 10 per cent of total revenues.
The HPE takeover cost Micro Focus upwards of $260m in fees to banks and financial advisers.
Micro Focus said integration problems had centred around the implementation of a new IT system that led to sales staff quitting the company in unusually high numbers. That has caused particular problems in North America.
Analysts questioned Micro Focus’s ability to drive growth without strong sales relationships. “There are a large number of people leaving the business,” analysts at Barclays wrote in a note. “It is a concern if Micro Focus is not finding it can incentivise the right people through changing sales compensation plans.”
Micro Focus said adjusted earnings margins would be in line with previous guidance because of progress made with its cost reduction programme — implying that adjusted earnings before interest, tax, depreciation and amortisation would also be lower than previously expected.
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