OpenText™ (NASDAQ: OTEX), (TSX: OTEX) today announced that it has reached agreement on the terms of a recommended all-cash offer to be made by Open Text Corporation (the Company), through its wholly-owned subsidiary, OpenText UK Holding Limited (Bidco), to acquire the entire issued and to be issued share capital of Micro Focus (LSE: MCRO) and (NYSE (ADS): MFGP) at a price of 532 pence per share (the Acquisition), implying an enterprise value of approximately $6.0 billion on a fully diluted basis. The terms and conditions of the Acquisition are set out below and in a joint announcement released by OpenText and Micro Focus (the Announcement) in the UK today under Rule 2.7 of the UK City Code on Takeovers and Mergers (the Takeover Code). Capitalized terms not defined in this press release have the meanings given in the Announcement.
Micro Focus is one of the world’s largest software companies and serves thousands of organizations globally, including many of the largest companies in the Fortune Global 500 and had approximately $2.7 billion pro forma trailing twelve months (TTM) revenue for the period ended April 30, 2022.(1)
“We are pleased to announce our firm intention to acquire Micro Focus, and I look forward to welcoming Micro Focus customers, partners and employees to OpenText,” said OpenText CEO & CTO Mark J. Barrenechea. “Upon completion of the acquisition, OpenText will be one of the world’s largest software and cloud businesses with a tremendous marquee customer base, global scale and comprehensive go-to-market. Customers of OpenText and Micro Focus will benefit from a partner that can even more effectively help them accelerate their digital transformation efforts by unlocking the full value of their information assets and core systems.”
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Barrenechea further added, “Micro Focus brings meaningful revenue and operating scale to OpenText, with a combined total addressable market (TAM) of $170 billion(2). With this scale, we believe we have significant growth opportunities and ability to create upper quartile adjusted EBITDA and free cash flows. We expect Micro Focus to be immediately accretive to our adjusted EBITDA. Micro Focus will benefit from the OpenText Business System to create stronger operations and significant cash flows, and Micro Focus customers will benefit from the OpenText Private and Public Clouds.”
OpenText values Micro Focus’ strong brands and culture and attaches great importance to the skill and experience of Micro Focus’ management team and employees.
“We intend to fund the all-cash Acquisition with existing cash, new debt and our existing revolving credit facility. OpenText does not contemplate raising any equity to fund the Acquisition. We are committed to providing investors with enhanced visibility into our high-value business areas, delivering a net leverage ratio(3) of below 3x over 8 quarters and continuing our dividend program, and we expect to have Micro Focus on our operating model within 6 quarters of closing the transaction,” Barrenechea concluded.
OpenText CEO & CTO Mark J. Barrenechea and OpenText EVP, CFO Madhu Ranganathan will host a conference call today at 5:00 p.m. Eastern Time to discuss today’s announcement. Conference call details and links to additional materials are included further below.
About the Terms of the Acquisition (all figures approximate)
- Total purchase price of $6.0 billion, inclusive of Micro Focus’ cash and debt
- Total purchase price is 2.2x Micro Focus’ pro forma TTM revenues(1)
- Total purchase price is 6.3x Micro Focus’ pro forma TTM adjusted EBITDA(4)
- Expected cost synergies of $400 million, including Micro Focus’ previously announced cost savings program of $300 million (net of inflation), as well as $100 million in additional cost synergies
- Targeting to be on the OpenText operating model within 6 quarters of closing
- Expect meaningful expansion of cloud revenues, adjusted EBITDA and cash flows in Fiscal 2024
- All-cash consideration for the Acquisition to be funded by $4.6 billion in new debt, $1.3 billion in cash, and a $600 million draw on our existing revolving credit facility
- The Announcement can be found on our website at https://investors.opentext.com. This press release should be read in conjunction with, and is subject to, the full text of the Announcement.
- The Acquisition is expected to close in the first quarter of calendar 2023, subject to the satisfaction (or, where applicable, waiver) of the conditions set out in Appendix 1 to the Announcement.
Conditions to the Acquisition and Timetable
It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement (the Scheme) under Part 26 of the U.K. Companies Act 2006. The purpose of the Scheme is to provide for us to indirectly become the owner of the entire issued and to be issued share capital of Micro Focus.
The Acquisition is subject to, among other things, approvals of the relevant Micro Focus Shareholders, the sanction of the Scheme by the Court and the receipt of certain antitrust and foreign investment approvals. The Acquisition is also subject to the other terms and conditions set out in Appendix 1 to the Announcement, and to the full terms and conditions to be set out in the Scheme Document.
The Acquisition will be put to Micro Focus Shareholders at the Court Meeting and at the General Meeting. In order to become effective, the Scheme must be approved by a majority in number of the Micro Focus Shareholders voting at the Court Meeting, either in person or by proxy, representing at least 75 percent in value of the Micro Focus Shares voted. In addition, a special resolution implementing the Scheme must be passed by Micro Focus Shareholders representing at least 75 percent of votes cast at the General Meeting.
It is expected that the Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and the General Meeting, together with the forms of proxy, will be sent to Micro Focus Shareholders as soon as practicable and in any event within 28 days of the Announcement (unless a later date is agreed among OpenText, Micro Focus and the UK Takeover Panel). An expected timetable of principal events will be included in the Scheme Document.
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