Autonomy shares jump 72% on sale to Hewlett Packard

 

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Shares in UK software firm Autonomy have soared 72% following the news that it has agreed to be bought by US giant Hewlett Packard for £7.1bn ($11.7bn).

With the deal due to be completed before the end of 2011, HP's offer is 64% higher than Autonomy's market value at the close of trading on Wednesday.

HP has said that Cambridge-based Autonomy will continue to be run as a separate business.

HP's offer still requires approval by Autonomy shareholders.

This is expected to be forthcoming, and HP is offering to pay 2,550 pence per share, compared with Autonomy's Wednesday closing price in London of 1,558p.

The £7.1bn offer is also equivalent to 47 times the pre-tax profits earned by Autonomy in the 12 months to June this year.

While Autonomy's share price has risen strongly following the takeover announcement, the news has been much less well received by HP's shareholders.

Shares in HP closed down 20% on Wall Street.

'Momentous day'

Autonomy was set up by researchers at Cambridge University and specialises in pattern-recognition technologies.

This enables companies to more easily search electronic data, particularly in cases involving compliance and legal issues.

Analysis

Chief executive Leo Apotheker had big ambitions for the consumer market. He wanted HP to become "as cool as Apple", challenge the iPhones, iPads and Android smartphones of this world with his Touchpads and Pre phones.

HP, Mr Apotheker implied, was the one company capable of combining cool design with security and reliability, to straddle the consumer space and corporate computing.

To Mr Apotheker's credit, he quickly realised that he could not out-apple Apple.

HP is leaving the PC business with its razor-thin margins to focus on highly profitable computing for businesses instead.

This is where the purchase of UK software firm Autonomy fits in.

Companies have one big IT problem right now: how to process, store and understand the rapidly growing data deluge that is flooding in from ever more connected devices and web services.

Autonomy has been pushing hard in this field of "business intelligence" and "business analytics". It will be Mr Apotheker's challenge to integrate successfully such a big new division with HPs other software offering.

It employs 1,900 people and already has a US presence, based in San Francisco.

If the deal does go ahead, Autonomy's founder and chief executive Mike Lynch, who has an 8.2% stake in the company, could pocket £582m. Autonomy's staff will also share £30m of share options.

Mr Lynch is also a non-executive member of the BBC's executive board.

Announcing the deal, Mr Lynch said: "This is a momentous day in Autonomy's history.

"From our foundation in 1996, we have been driven by one shared vision - to fundamentally change the IT industry by revolutionising the way people interact with information."

Mr Lynch added that the takeover by HP would enable Autonomy to take its technology to a "truly global stage".

Autonomy's headquarters will remain in Cambridge, as well as all "key" research and development work.

Shai Vyakarnum, director of the Centre for Entrepreneurial Learning in Cambridge, who knows Mr Lynch, told the BBC's Today programme that he was surprised by the news of the takeover.

"I wasn't aware that Mike and his board were looking to exit," he said.

"But I suppose with the stock markets where they are, perhaps in their view [this was] undervaluing the company."

Mr Vyakarnum added: "I think from Mike's point of view, from the bedroom in 1993 of his college in Cambridge through to an exit of this kind, this is personally very good.

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"He is one of the few chief executives that has made it all the way if you like."

'Global issue'

Brian Morgan, professor of entrepreneurship at the University of Wales Institute Cardiff, told the BBC that Autonomy's decision to sell up could have been due to a lack of available capital.

"After they reach a certain size, companies have great difficulty raising the sort of capital they need to compete with the big boys," he said.

"And when you start encroaching on their markets in a big way, you then find you haven't got the capital, or the wider resources, or managerial capacity to properly compete.

"So you do then start to consider accepting a takeover. This isn't just a UK phenomenon, it is a global issue for fast-growing, successful smaller companies."

Mike Lynch told the BBC last year how Autonomy works as a business

Rajeev Bhal, software analyst at financial services firm Matrix, said the takeover deal for Autonomy could result in other UK software companies receiving bid interest.

He said he saw Micro Focus as the most likely target. The Newbury-based company specialises in helping businesses upgrade their computer systems.

HP's planned purchase of Autonomy comes as it is moving out of the personal computer market to instead focus on business systems and software.

This is set to increase the level of competition for market leaders IBM and Oracle.

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