Hewlett Packard Enterprise (NASDAQ:$HPE) saw a spin-off with Micro Focus International (LON:$MCRO), consequently raising concerns over reported inversion regulations. These regulations were set by the IRS (Internal Revenue Service) back in 2016.
According to a report from Bloomberg BNA, “The Micro Focus transaction is expected to violate an ownership rule in the regulation that applies if former shareholders of an acquired U.S. entity own 60% or more of the combined foreign acquiring entity, following an acquisition. Companies that surpass the 60% threshold are subject to adverse tax consequences.”
As a reference, in 2016, Pfizer (NASDAQ:$PFE) and Allergan (NASDAQ:$AGN) pulled out of their $160 billion merger due to anti-inversion rules.
The Spin-Off
HPE valued the spin-off and merger of its non-core software assets with Micro Focus at a cool $8.8 billion. The deal was targeted at HPE’s application delivery management, enterprise, security, big data, IT operations management, information management, and governance businesses. HPE was expected to own 50.1% of the combined entity, with the deal initially expected to close by September 2017.
In fiscal 2Q17, HPE’s software segment revenue fell 10% YoY, much to Micro Focus’s disappointment.
Fine Print
- In the trailing-12-month period, HPE stock has risen 11%
- In the past month, HPE stock has risen 2.7%
- Since the start of 2017, HPE stock has risen 3.7% after rising more than 54% in 2016
- Since its fiscal 2Q17 results released in May, HPE stock has fallen 4.4%
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