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Hewlett Packard Enterprise’s Spin-Off with Micro Focus: Penalties?

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Hewlett Packard Enterprise might be subject to penalties

Hewlett Packard Enterprise’s (HPE) spin-off with Micro Focus has come under scrutiny due to reported inversion regulations. The companies need to comply with anti-inversion rules set down by the IRS (Internal Revenue Service) in 2016. According to a report from Bloomberg’s BNA, “The HP Enterprise/Micro Focus transaction is expected to violate an ownership rule in the regulations that applies if former shareholders of an acquired U.S. entity own 60 percent or more of the combined foreign acquiring entity, following an acquisition. Companies that surpass the 60 percent threshold are subject to adverse tax consequences.”

Last year, Pfizer (PFE) and Allergan (AGN) had to shelve plans for their $160 billion merger due to anti-inversion rules.

HPE-Micro Focus spin-off announced in 2016

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Hewlett Packard Enterprise announced a spin-off and merger of its non-core software assets (application delivery management, enterprise security, big data, IT operations management, information management, and governance businesses) with Micro Focus. HPE valued the transaction at $8.8 billion, and the company stated that it would own 50.1% of the combined entity. The deal was initially expected to be completed by September 2017.

Earlier this year, Micro Focus had expressed its disappointment when HPE’s software segment revenue fell 10% YoY (year-over-year) in fiscal 2Q17.

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