HP takes $8.8bn hit on "wilfully" overvalued Autonomy

20 Nov 2012
Dollars

Troubled HP accuses Autonomy of falsely inflating the value of the company before takeover

HP has written off $8.8bn related to its purchase of Autonomy, accusing that firm of "questionable accounting and business practises" to inflate the value of the company.

HP bought Autonomy in 2011 for more than $10bn, while the PC giant was still headed by CEO Leo Apotheker, as part of his plans to shift the company's focus to corporate IT and software.

Today, it announced an impairment charge of $8.8bn in the fourth quarter of the year, more than $5bn of which was directly linked to the accounting issues at Autonomy.

HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures

HP said it launched an internal investigation into the issue after a senior member of Autonomy's leadership team claimed there had been "a series of questionable accounting and business practices at Autonomy prior to the acquisition by HP", meaning it was "substantially overvalued" at the time of the deal.

"HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition by HP," HP said in a statement. "These efforts appear to have been a wilful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal."

The whistleblower alerted HP after Autonomy's founder Dr Mike Lynch left the firm, and told HP "numerous details" that it was not previously aware of.

Lynch left as part of reorganisation at the firm in May, with several members of senior management following him in the subsequent weeks, complaining about HP's bureaucracy.

The investigation has so far revealed issues with how Autonomy's revenue, margins and growth rate were reported, as well as its "business mix", with "low-end" hardware sales wrongly classified as software products.

HP said it had referred the case to US and UK regulators for civil and criminal investigation, and was planning to "seek redress" from "various parties" in the courts. "The company intends to aggressively pursue this matter in the months to come," it added.

In a statement sent to news agency Reuters, a spokesperson for Mike Lynch said the "former management team of Autonomy was shocked to see this statement" and "flatly rejects these allegations, which are false".

"HP's due diligence review was intensive, overseen on behalf of HP by KPMG, Barclays and Perella Weinberg. HP's senior management has also been closely involved with running Autonomy for the past year," the statement added.

The news comes as HP announces its latest quarterly results, with net revenue down 6.7% to $29.96 billion for the quarter ended 31 October from $32.12 billion a year earlier.

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