Hewlett-Packard closes in on £6bn Autonomy deal

Hewlett-Packard is closing in on a $10bn (£6bn) deal to buy Britain's largest technology business Autonomy, with the US giant planning to spin off its troubled PC division once the takeover is finalised. Autonomy said it was in talks with HP shortly before the latter was due to report its third-quarter results last night.

The spin-off of HP's consumer PC business would be the most dramatic event in the sector since IBM sold its personal computer unit to Lenovo of China in 2004. The company had no comment on the acquisition or restructuring plans ahead of its results.

Autonomy, which makes compliance software to help companies track emails and phone calls, was the focus of bid rumours earlier this year, with both Oracle and Microsoft linked to potential offers for the blue chip company. Yet its shares have fallen by 21 per cent since the most recent peak in June, as hopes of a bid waned. News of the talks emerged after UK markets closed yesterday. Autonomy was valued at £3.5bn yesterday after its shares fell more than 8 per cent during the latest bout of market turbulence.

HP is the largest manufacturer of personal computers in the world, but a combination of weak consumer spending and competition from new tablet computers such as the Apple iPhone have contributed to sliding sales. Revenues in the division were down 23 per cent at the most recent results.

Spinning off the business would rid HP of a low-margin division unloved by analysts, and mark a dramatic shift in the company's strategy. When the news hit the US, HP's shares stormed higher, and at one stage it was the only stock in positive territory.

The appointment of Leo 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.

"We believe HP lacks a sustainable competitive advantage in most consumer-facing areas," Morningstar's technology sector analyst Michael Holt said in his most recent note to clients.