SAN FRANCISCO – A class action Securities Act lawsuit has been filed alleging software company Micro Focus misled investors who supported its $8.8 billion merger with HPE Software, a firm associated with Hewlett Packard.
The $8.8 billion was more than the total market capitalization of Micro Focus, which inexplicably and rapidly lost multiple millions of dollars as its stock plunged from more than $28 to about $13 earlier this spring. Los Angeles attorney Laurence Rosen on behalf of plaintiff David Schmitt cited a press release that suggested to prospective investors that the merger would “increase significantly the scale and breadth” of Micro Focus “through the combination with a business operating in adjacent and complementary product areas with similar characteristics and benefitting from a high proportion of recurring revenues and strong cash conversion” and that the merger would “create one of the world's largest pure-play infrastructure software companies.”
The complaint alleges the press release cited annual revenues of $4.5 billion for Micro Focus.
The complaint also suggests that Micro Focus took an unusually long time to complete the merger, which was announced late in 2016 and consummated last fall.
Documenting an earnings call in April 2017, the complaint also covers SEC filings by Micro Focus and offering documents, which the plaintiff suggests were negligently prepared, containing false information and erroneous market values.
Calling some reported statements “materially false and misleading,” the plaintiff suggests that reports did not disclose that HPE Software was undergoing disruptions in its global customer base after uncoupling from HP itself.
The plaintiff also cites “worsening revenue trends,” from Micro Focus.
SEC filings, the plaintiff contends, require various risk assessment, and the complaint suggests some risks were not fully disclosed.
Bringing a class action with two counts, violations of sections 11 and 12 of the Securities Act, Rosen asked for the case to be designated a proper class action so it can move forward, noting there could literally be millions of co-plaintiffs based on the fact the stock has been traded globally, by potentially millions of investors.