Shares in Micro Focus International (MCRO) leapt 15 per cent after it agreed to merge with Attachmate, another global enterprise software provider, in a $2.4bn (£1.5bn) deal. The combined entity would be one of the top three global specialists in areas such as mainframe modernisation and host connectivity. And shareholders will also receive a windfall of 60p a share, on top of the 60p payout announced in August.
Investors’ main concern may be the deal’s impact on Micro Focus’s historically large shareholder returns. Broker Panmure Gordon estimates that the combined entity will have $1.7bn in net debt, or 3.3 times its cash profits. Micro Focus intends to lower that ratio to 2.5 times within two years of the deal’s completion - slated for November - before it considers any payouts beyond its normal dividend. However, investors who stick around may be in line for a $1.53 a share return in November 2018.
Panmure hiked its price target by 30 per cent to 1,195p on news of the merger. It expects pre-tax profits of $272m this year, giving EPS of 113¢, from $180m and 97.5¢ last year.
