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Micro Focus shares collapse after sales warning and CEO exit

(Bloomberg) -- Micro Focus International Plc shares fell the most in 13 years after it warned that its year-on-year revenue decline will be greater than expected as it grapples with its latest $8.8 billion deal, and said Chief Executive Officer Chris Hsu has stepped down.

Since Micro Focus posted its interim results on Jan. 8, revenue has dropped more than anticipated, the company said Monday. Micro Focus is now expecting revenue over the twelve months to Oct. 31 to fall between 6 percent and 9 percent, compared to previous guidance of a drop of 2 percent to 4 percent.

Shares in Micro Focus fell 56 percent to 823 pence in London, the most since May 2005.

"Clearly we have let people down with this execution and we have to rebuild that trust," Kevin Loosemore, chairman of Micro Focus, said in an interview. The worst area of business was licence fee sales in North America, he added, in part down to a high staff turnover.

Hsu resigned on Sunday in order to pursue another opportunity and has stepped down immediately. Stephen Murdoch, currently Micro Focus’ chief operating officer, has become the new CEO.

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Micro Focus International PLC signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Sept. 1, 2017. U.S. stocks rose and Treasuries declined as reports showing a gain in consumer sentiment and a rise in manufacturing offset a mediocre August employment report. Photographer: Michael Nagle/Bloomberg

In September Micro Focus wrapped up its $8.8 billion acquisition of Hewlett Packard Enterprise’s software assets, such as application delivery management, big-data analytics and enterprise security. Hsu, a former HPE executive, took over as chief executive officer of the combined group following the deal’s completion.

Micro Focus’ management believe the hit to revenue to be largely a one-off. Micro Focus added that it expected the impact on earnings to be matched by the fall in costs.

In January Micro Focus slumped the most in almost seven years after predicting falling sales and reporting revenue at its HPE Software business at the low end of its forecast range.

"The strategy remains the same," said Loosemore. "We believe this deal will turn out to be a good deal. We think the market in infrastructure software will continue to consolidate and we hope to participate in this consolidation."