'We were duped' claims HP over $11 billion buy of British firm Autonomy
Computer giant Hewlett-Packard claimed yesterday it was duped into overpaying last year for one of its largest acquisitions, the British software maker Autonomy. The deal contributed to an $8.8 billion write-down and a huge quarterly loss, HP reported.
Autonomy's Mike Lynch
In an interview with The Wall Street Journal, Autonomy founder Mike Lynch said he wasn't aware Hewlett was preparing these allegations and that they were "utterly wrong."
Hewlett-Packard claimed Autonomy's leadership had misrepresented its performance . An internal investigation had revealed "serious accounting improprieties" and "outright misrepresentations" in connection with Autonomy, which H-P bought for $11.1 billion in October last year.
"There appears to have been a wllful sustained effort" to inflate Autonomy's revenue and profitability, said Chief Executive Meg Whitman. "This was designed to be hidden."
Michael Lynch, Autonomy's founder and former CEO, fired back hours later, denying improper accounting and accusing HP of trying to hide its mismanagement.
"We completely reject the allegations," said Lynch, who left HP earlier this year. "As soon as there is some flesh put on the bones we will show they are not true."
In a Q and A with the WSJ , Lynch said, "I can’t understand how you can write down $9 billion of value and say somehow this was all caused by something you didn’t notice when you did due diligence with 300 people. It would be kind of a big elephant to have missed."
Asked when he was first made aware of these allegations, Lynch said, " We were not made aware. We have been ambushed. The first we knew was when the press release came out at around 1pm U.K. time."
HP said it had asked the U.S. Securities and Exchange Commission and the U.K. Serious Fraud Office to open investigations. The SEC and Federal Bureau of Investigation were launching inquiries,said the WSJ, quoting a people familiar with the probes.
Former CEO Leo Apotheker led the Autonomy purchase, until he was forced out in 2011 and replaced by Ms. Whitman.
H-P started probing the Autonomy deal after a whistleblower from Autonomy , said to be a senior executive allegedly said executives there had been cooking the books before the acquisition. The identity of that senior executive couldn't be determined, said the WSJ.
A spokesman for Autonomy's accounting firm, Deloitte LLP, said : "Deloitte UK categorically denies that it had any knowledge of any accounting improprieties or any misrepresentations in Autonomy's financial statements, or that it was complicit in any accounting improprieties or misrepresentations."
Lynch, the former Autonomy CEO, said H-P is "completely and utterly wrong." He said of Autonomy: "It is a business we spent 10 years building. It was a world leader. It was destroyed in less than a year by the petty infighting at H-P."
HP shares already near a 10-year low, ended at $11.71yesterday , down $1.59, or 12%, on the New York Stock Exchange.
When the deal was announced in August 2011, Autonomy was Britain's biggest software company and second-largest in Europe, after Germany's SAPSAP. Customers include intelligence agencies, big corporations, banks and law firms.
HP said then that Autonomy was key to its transformation into a higher-margin seller of software.
The WSJ said that working with auditing firm PricewaterhouseCoopers , an H-P team re-created Autonomy's books. People familiar with the investigation said that the team found that for at least two years, Autonomy booked sales of low-margin hardware products as software and would label the cost of that hardware as marketing or other expenses, which made products appear and more profitable than they really were.