Hewlett-Packard seals £6.2bn deal to buy Britain's Autonomy

Hewlett-Packard (HP) has agreed to buy Autonomy, Britain's largest software company, for £6.2bn as part of a fundamental shift away from the personal computer manufacturing business for which it is most famous.

The US giant announced the takeover last night, along with another set of disappointing results and a decision to spin off or sell its PC business. The spin-off would be the most dramatic event in the sector since IBM sold its personal computer business to Lenovo of China in 2004.

For Autonomy, which makes compliance software to help companies to track emails and phone calls, a takeover is the culmination of months of negotiations. Earlier this year, it was rumoured to have attracted bid interest from a number of global software firms, including Oracle and Microsoft.

The company, which has joint headquarters in Cambridge and San Francisco, was set up in 1996 by Mike Lynch using technology that emerged from his research at Cambridge University. Mr Lynch is still chief executive and will continue to run the company under HP's ownership.

Despite growing to become the largest technology business in the UK, few consumers have ever heard of the company. In an attempt to raise its profile, the group announced the shirt sponsorship of Tottenham Hotspur Football Club last year and the Mercedes GP Formula One team in May.

The two sides agreed a takeover price of £25.50 per Autonomy share, a premium of 64 per cent over its closing price yesterday. "This is a momentous day in Autonomy's history," Mr Lynch said. "HP provides Autonomy with the platform to bring our world-leading technology and innovation to a truly global stage, making the shift to a future age of the information economy a reality."

HP is the largest manufacturer of personal computers in the world, but a combination of weak business and consumer spending and competition from new tablet computers such as the Apple iPad has contributed to sliding sales. Revenues in its "personal systems group" fell 5 per cent in the second quarter, and sales direct to consumers were down 23 per cent. Headline figures for the third quarter and a gloomy outlook for the fourth, released ahead of schedule last night, suggested there has been little improvement.

The appointment of Léo Apotheker, previously chief executive of the German software maker SAP, to run HP last year was seen as a move to shift the focus of the company towards software and services and away from its traditional hardware businesses. HP will still make servers and other large-scale hardware for corporate clients, but is increasingly trying to bundle these together with software and consulting.

It is clear Mr Apotheker is moving more quickly and radically than expected. The spin-off or sale of the PC business includes computers for businesses as well as for consumers, and the company said last night that it was also discontinuing its TouchPad tablet computer line and smartphones based on the WebOS operating system. HP acquired WebOS when it bought Palm, the hand-held device manufacturer, for $1.2bn just 16 months ago.

"Today is all about driving shareholder value," Mr Apotheker said on a conference call to explain the strategic turnabouts. "We are focusing on what needs to be fixed."