Hewlett-Packard in £7bn takeover of UK software firm

PC manufacturer looks to move away from hardware with acquisition of Autonomy

Hewlett-Packard has sent shockwaves through the IT world by announcing its exit from the personal computer business and a £7bn takeover of Autonomy Corporation, the largest UK software company.

Autonomy's co-founders Mike Lynch and Richard Gaunt stand to make £566m from the sale of the business which they started with a £2,000 loan, in what will be the largest sale of a European software maker and the biggest UK firm to fall under the hammer since Cadbury was bought by US group Kraft last year for £11.5bn.

Hewlett-Packard's offer of £25.50 a share has been unanimously accepted by the Autonomy board, which will now recommend it to shareholders.

Lynch will continue to lead Autonomy and the company still retains its significant research and development facility at its Cambridge headquarters.

HP, the world's largest maker of personal computers, has announced it is to undertake a strategic review of the division which it hopes will result in a sale or separate stock market listing within the next year to 18 months.

Léo Apotheker, HP's new chief executive, wants to shift the business away from manufacturing hardware towards cloud computing – offering software and information storing over the internet.

Tablet computers, notably Apple's iPad, are beginning to eat into the market for laptops and Apotheker believes HP's consumer business will be able to adapt more nimbly as a stand alone entity.

He said: "Autonomy presents an opportunity to accelerate our strategic vision to decisively and profitably lead a large and growing space. Autonomy brings to HP higher value business solutions that will help customers manage the explosion of information."

Autonomy specialises in "unstructured" searches for big companies, allowing them to trawl through their own databases and seek out content from emails, phone calls and video, finding information that can be used to help detect fraud or ensure legal compliance.

Like HP, it has also moved into cloud computing. It now stores data on behalf of its clients, who include Coca-Cola, Nestlé and the US Securities and Exchange Commission. Earlier this year, the Cambridge-based company spent $380m buying a digital archiving business from storage company Iron Mountain.

Autonomy said in a statement: "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. HP shares this vision and provides Autonomy with the platform to bring our world-leading technology and innovation to a truly global stage, making the shift to a future age of the information economy a reality."

The news, which began to leak after the London stock exchange closed, took British traders by surprise.

Autonomy's shares were among the top 10 fallers in the FTSE 100 on Thursday, ending the day down 8.3% at £14.29. HP's offer represents a premium of approximately 64% to the closing price of £15.58 per share on Wednesday.

Lynch has had a fractious relationship with the British investment community, complaining that their US counterparts, who make up around 50% of Autonomy's shareholders, are better at understanding the potential of IT companies.

In the past two years, the company's share price has not risen much above £20. The success of Autonomy's business model has never been in doubt – its ability to retrieve information surpasses even Google in the complexity and variety of data it can make connections between.

Autonomy reported full-year revenues for 2010 of $870m, up 18% on the year before, and profit before tax of $379m, up from $323m in 2009.

But observers have raised questions about the company's management style.

Last summer, Deutsche Bank analyst Marc Geall, a former head of investor relations at Autonomy, produced a report which claimed: "The management structure, control and systems at Autonomy are more representative of a start-up than a major global player. The senior management team is talented but lacks bandwidth. This can lead to some decision paralysis."

Lynch's ability to create value is not in doubt. Autonomy had a turnover of $1.5m when in was floated in 1998 at 30p a share. Its departure from the London Stock Exchange will leave Sage as the only other major independent UK software company.


Juliette Garside

The GuardianTramp

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