May 9, 2017 / 9:27 AM / 3 months ago

Micro Focus shares hit by weak update at software business it is buying

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FILE PHOTO: The offices of British technology firm Micro Focus, in Newbury, Britain, September 8, 2016.Eddie Keogh

LONDON (Reuters) - Shares in British tech firm Micro Focus plunged on Tuesday after revenues at Hewlett-Packard Enterprise's software business, which it is buying, fell in the last quarter.

Micro Focus, which specializes in maintaining and upgrading older software systems, said revenues at HPE's software business fell around 10 percent in the last quarter, which it said was disappointing but not unusual given the degree of change in the business.

Its shares dropped as much as 13 percent, and were last down 7.6 percent, the biggest faller on the blue chip FTSE 100.

They had hit a record high on Monday, after rallying 35 percent since the British company struck a $8.8 billion deal in September to buy HPE's software business, catapulting it into the top tier of European tech companies. [nL1N1BJ18F]

"Whilst the short-term decline in license is disappointing it is not unusual given the level of change being undertaken," Micro Focus's Executive Chairman Kevin Loosemore said in a statement. He said he was encouraged by the early progress that HPE Software's management was making on implementing operational efficiencies.

A sign stands outside the offices of Micro Focus in Newbury, Britain, September 8, 2016.Eddie Keogh

Analysts at Citi said that HPE Software's quarterly performance was disappointing, although it expected Micro Focus to change the emphasis of the business.

"Whilst we are still waiting for finer details on the mix between Licence and Professional Services we believe this does pose questions on the end market dynamics and rate of decline for the acquired HPE Software business," the analysts said in a note.

"We expect the decline in HPE Software revenues will introduce some uncertainty around medium term revenue growth."

Micro Focus said it would convene a general meeting to request approval of the transaction shortly, and shareholders will also be asked to approve a $500 million return of value, approximately $2.09 per share.

Micro Focus said its revenue for the year to end-April was expected to be within its guidance of flat to down 2 percent on a pro-forma constant currency basis.

Reporting by Alistair Smout and Paul Sandle; Editing by Susan Fenton

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