Micro Focus returns to its knitting after bid talks fizzle

22nd Aug 2011 08:03

Micro Focus International, the acquisitive legacy software firm that suddenly found itself in the sights of predators, said it is no longer involved in bid talks.The company received a preliminary bid approach on 26 April, which flushed a number of other interested parties out of the woodwork, prompting the board of Micro Focus to set a deadline of 19 August for serious offers to be put on the table. That deadline has now passed without a suitable offer emerging, and so Micro Focus is no longer officially in an offer period.One of the interested parties, private equity (PE) firm Advent International, said that, due to current market volatility, it does not intend to make an offer for Micro Focus, though it remains a great admirer of the company, its management and its employees.Broker Northland Capital Partners said that "cash flows associated with the business means that it remains a target for PE and the stock is inexpensive in the sector but disappointment is likely to weigh on the price short term.Singer Capital Markets, meanwhile, took the opporunity to reiterate its "buy" recommendation."Although there remains a lot still to do, the Q1 IMS [first quarter interim management statement] shows that the first steps have been taken towards delivering the operational turnaround, and the termination ofthe bid talks should not affect management's plans to put the group back on a growth track," Singer said."Whilst a return to growth will be the key catalyst for the shares, the share buyback and use ofthe balance sheet should offer some near-term support," the broker added.Singer has a target price of 415p.With bid approaches dealt with, and in the wake of an improved trading outlook (as announced on 10 August), the company has announced it is to resume its share buyback programme.The group currently has 197.82m ordinary shares in issue (excluding 8.21m held in treasury) and has the authority from shareholders to buy back up to 12.3m of those ordinary shares, at a price that must not be 55 higher than the average of the middle market quotations of the Micro Focus share price derived from the London Stock Exchange Daily Official List for the five business days before the day the purchase is made.The board is also exploring other ways of increasing the return of funds to shareholders. After taking account of the dividend distribution of $32m to be paid to shareholders on 28 September 2011, the group has about $112m of distributable reserves. The board is reviewing its options to enable the group to increase the amount of distributable reserves and will consult with shareholders on the optimal use of the group balance sheet while the operational improvements are implemented. --jh