According to the Complaint, Micro Focus International plc ("Micro Focus" or the "Company") is an infrastructure software company which develops, sells, and supports software products and solutions to federal, airlines, and healthcare internationally.
On September 7, 2016, Micro Focus issued a press release announcing a proposed merger with HPE Software, the software business segment of HPE. The transaction was valued at $8.8 billion, larger than Micro Focus’s market capitalization at the time, and was projected to triple the Company’s revenues. According to the deal terms, the Company would issue newly registered ADSs to shareholders of HPE as consideration in the Merger, such that immediately following the completion of the Merger, HPE shareholders would own 50.1% of the fully diluted share capital of the combined company. In addition, HPE would receive $2.5 billion financed through newly
incurred indebtedness of HPE Software, and Micro Focus shareholders would receive a $400 million return of value prior to completion.
The Complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose that: (1) HPE Software was experiencing significant disruptions in global customer accounts from its de-merger from HP; (2) HPE Software and Micro Focus were experiencing employee attrition, which adversely impacted Micro Focus’s operational capabilities and revenue trends; (3) Micro Focus was suffering worsening revenue trends and on pace to significantly miss market expectations for its interim results in its core legacy business for the six months ended October 31, 2017; (4) Micro Focus was experiencing significant sales execution problems in its North America region; (5) HPE Software did not have the operational capabilities, loyal customer base, products or key personnel to justify its purchase price or to reverse worsening revenue trends; (6) Micro Focus had failed to put in place the operations, procedures and personnel necessary to integrate successfully with HPE Software to provide a reasonable likelihood that the purported synergies from the Merger would be realized; (7) the total enterprise value for the Merger was artificially inflated by more than $3.4 billion; and (8) as a result Micro Focus’s ability to service the increased debt load it had incurred as a result of the Merger had been materially impaired.