Hedge fund Elliott Management is pushing UK software company Micro Focus, which merged with Hewlett Packard Enterprise's software business last year, to sell to a private equity firm, according to people familiar with the matter.
Elliott has taken a stake in Micro Focus, said the people, who asked not to be named because the transaction is private. The stake is not quite five percent, which is the automatic disclosure threshold, said the people.
Micro Focus has already received inbound interest from several private equity companies, said the people.
Elliott has also suggested that Micro Focus carve out and sell Suse Linux, which it acquired as part of a $1.2 billion deal for Attachmate in 2014.
Micro Focus's market capitalization is about $5.5 billion. Elliott believes Suse Linux could be sold separately and is being severely discounted within the company. That could be appealing for a private equity firm looking to maximize its investment.
Suse is one of the leading distributions of the open source Linux operating system, which is used in many enterprise data centers. It competes most directly with Linux distributions from Red Hat, a publicly traded company with a market cap around $28 billion, and privately held Canonical, which is reportedly considering an IPO.
In general, these companies don't sell licenses to use Linux, whose underlying source code is available for free to anybody to use and modify, but sell consulting and support services around it.
A Micro Focus spokeswoman didn't immediately respond to comment. An Elliott Management spokesman declined to comment. The news that Elliot has a stake in Micro Focus was previously reported by Bloomberg News.
Micro Focus CEO Chris Hsu stepped down last month, less than a year after Micro Focus merged with some HPE software assets in a deal valued at $8.8 billion. Micro Focus also acquired Serena Software for $540 million from private equity firm HGGC in 2016.
Micro Focus shares fell the most in more than a decade after Hsu announced he was leaving and year-over-year revenue would be a greater decline than expected.