Creating One of the Largest Software & Cloud Businesses Enabling Digital Transformations Expands Information Management Market Opportunity to $170 Billion
Waterloo, ON (Aug. 25, 2022) – OpenText™ has announced that it has reached agreement on the terms of a recommended all-cash offer to be made by Open Text Corporation, 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, 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 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.
“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.”
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 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.
Full details and the terms and conditions of the Acquisition can be found in the Announcement, which is available at https://investors.opentext.com.
Financing of the Acquisition
Concurrently with the announcement of the Acquisition, the Company and certain of its subsidiaries entered into (i) a first lien term loan facility (the “Term Loan Credit Agreement”) among the Company, the lenders party thereto, the subsidiary guarantors party thereto and Barclays Bank PLC, as administrative agent and (ii) a bridge loan agreement (the “Bridge Loan Agreement”), among the Company, the lenders party thereto, the subsidiary guarantors party thereto and Barclays Bank PLC, as administrative agent. OpenText also intends to enter into certain derivative transactions to hedge certain foreign currency obligations in relation to the Acquisition.
The Term Loan Credit Agreement provides for a senior secured delayed-draw term loan facility in an aggregate principal amount of $2.585 billion. The proceeds of the Term Loan Credit Agreement will only be used to finance the Acquisition. The Term Loan Credit Agreement is designed to ensure compliance with the cash confirmation requirements under the Takeover Code and, accordingly, contains customary UK certain funds provisions. The Term Loan Credit Agreement further contains representations, warranties, covenants and events of default that are customary for a transaction of this nature.
The Bridge Loan Agreement provides for commitments of up to $2.0 billion (the “Commitments”) which, together with cash on hand and borrowings under the Company’s existing revolving credit facility, will be used to repay Micro Focus’ existing debt. Subject to the conditions in the Bridge Loan Agreement, the Commitments are intended to be reduced by proceeds of certain debt securities offerings of OpenText (or affiliates thereof). The availability of the borrowings under the Bridge Loan Agreement are subject to the satisfaction of certain customary conditions for financings of this nature and the Bridge Loan Agreement contains representations, warranties, covenants and events of default that are customary for a transaction of this nature.
The Company intends to reduce commitments or the borrowings under the Bridge Loan Agreement by accessing the debt capital markets directly or through certain affiliates prior to or following the closing of the Acquisition. Such debt issuances would be subject to market and other conditions and this press release does not constitute the offer or sale of any securities in any jurisdiction.
Additional information with respect to the Term Loan Credit Agreement and Bridge Loan Agreement, including the terms thereof and the subsidiary guarantors thereto, can be found in the Current Report on Form 8-K to be filed and furnished with the Securities and Exchange Commission (SEC).
Barclays Bank PLC, BMO Capital Markets Corp., Royal Bank of Canada and Citigroup Global Markets Inc. are acting as lead arrangers on the financing to OpenText.
Barclays Bank PLC is serving as sole financial advisor to OpenText. Allen & Overy LLP and Cleary Gottlieb Steen & Hamilton LLP are acting as legal advisors to OpenText.
For additional information and cautionary language regarding forward-looking statements, please refer to the original press release.
OpenText (NASDAQ,TSX:OTEX), The Information Company™, enables organizations to gain insight through market leading information management solutions, powered by OpenText Cloud Editions. For more information, visit opentext.com.
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Source: OpenTextTags: OpenText