HP misses chance to halt Autonomy deal and dodge its buyer's remorse: Report

HP misses chance to halt Autonomy deal and dodge its buyer's remorse: Report

Summary: HP executives were told about a claim of improper accounting at Autonomy before the £7.1 billion acquisition, but did not relay that to the board or CEO, sources have told the Wall Street Journal.

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TOPICS: Hewlett-Packard
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HP HQ
(Credit: HP)

During the final months of ex-CEO Leo Apotheker's leadership at HP, the company's executives and board missed key opportunities that could have put it off of the acquisition of British software company Autonomy--a purchase that HP would later write down by $5 billion.

HP executives were told about a claim of improper accounting at Autonomy before the £7.1 billion ($11 billion) acquisition, but never relayed that to the board or CEO, according to the Wall Street Journal.

Outside auditors for Autonomy had told HP executives during a conference call, days before the August 2011 deal, that an Autonomy executive had raised an allegation of improper accounting at the firm, the paper claims, citing sources involved in the acquisition.

The auditors added that the allegation was later found to be groundless, however the HP executives on the call failed to pass the allegation on to HP's board and CEO, the WSJ reported--a missed opportunity to stop a deal said to have been regretted almost immediately after being approved.

The missed message was set against a backdrop of massive upheaval at the top echelons of HP, where executives were distracted by the potential acquisition alongside considering the potential sale or spin-off of its PC business.

The report claims that HP regretted the deal almost immediately after it was signed, and was seeking a way out of it.

To manage the decisions, the board split into two: one codenamed Hermes, which focused on the PC business sale or spin-off; the other codenamed Tesla, which looked into the Autonomy deal.

According to the report, the split board disrupted HP's normal procedures during an acquisition, which usually require that the finance committee review and accept a proposal before submitting it to the full board for consideration; however, this never happened in Autonomy's case.

The report claims that HP regretted the deal almost immediately after it was signed, and was seeking a way out of it--a move that would be impossible under UK takeover rules unless it could prove financial impropriety.

Executives, including new chief Meg Whitman, were said to have been told in mid-2012 of allegations that the company had been manipulating its numbers. An ensuing internal review conducted by HP tied the bulk of an $8.8 billion charge in Q4 on its software unit to "serious accounting improprieties" at Autonomy--a charge that Autonomy's CEO (at the time of its acquisition) Mike Lynch, repeatedly denied.

Since the writedown, Whitman has said that HP remains committed to Autonomy's products, while a sale of the business is thought to be out of the question.

HP had not responded to request for comment at the time of writing.

Topic: Hewlett-Packard

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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8 comments
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  • Don't Get Me Wrong

    This and the Wall Street Journal article it summarizes are fascinating, but it seems to this reader as spin via rumor. HP's regret over the deal is better described as Chairman of the Board Ray Lane's regret, after the stock drops 20% of its value after the deal, and some disappointing results, were announced. Turns out, the report says, his largest stockholders were looking to HP for stability not growth.

    The split of the board into Hermes and Tesla is better explained at the WSJ, but who on the Board was in which committee? And while Tesla was putting together Autonomy, Hermes was moving the Board towards getting out of the PC business. Another component of the news that drove the stock down.

    I still think that there's this bifurcated message coming out of HP. While the rumors suggest mistakes were made (passive voice noted) the public announcements are that these were good, though flawed, ideas. They hired a guy to do bold things and when the market expressed disapproval, the Board chose to manage by stock price and out he went. Ironically, the WSJ says the Board understood that former CEO Hurd's practice of cutting costs to get better short-term results was not the way to go.
    DannyO_0x98
    • Agreed

      The whole of HP is a company of contradiction. The points you made on the article comparison were right, but they can be further emphasized by this interview with HP's head of customer support. Every division of HP is the same. The interview is here http://bit.ly/HPinterview

      I don't understand how a company can continually do the same thing at every level, from the chairman of the board, to the lowest level of the company. Their supply chain and product lineup is so large and incomprehensible that everyone in the company has no idea what's going on, and they have no hope of solving all the problems efficiently.
      Politiguy
  • HP CEO will have to go if...

    In your article you stated that the auditors found the allegation of accounting improper accounting groundless.

    If the bulk of the HP $8.8bn write down was Autonomy, lets say $6bn was, and it was bought for $11bn, HP is basically stating that Autonomy was at least 50% was over valued.

    Ok lets also say the price was at premium of 25% (or even 30%), then 20-25% of the value is out due to improper accounting, which is huge. If the Auditors missed that then they are also in trouble as is HP's finance committee.

    However if the improper accounting is proved groundless as the Auditors said it was, then Meg Whitman has no choice but to go.
    pjc158
    • Wow

      Love my job, since I've been bringing in $5600… I sit at home, music playing while I work in front of my new iMac that I got now that I'm making it online(Click on menu Home)
      ........http://goo.gl/GDZ7R

      Happy New Year!
      AlexSongFF
  • What?

    If it's groundless, why would they pass it on? Part of the point of being delegated authority to do something (in this case, investigate) is not just to aggregate, but also to filter information.

    I'm sure the unnamed "executives" also didn't report on any cases of bedbugs, whether the food service was cited by the local health department, or whether the current CEO's secretary needed to drop a stone.
    m0o0o0o0o
    • Clarify

      Just because an allegation is about something important doesn't make it reportable. Groundless means (wait for it) the auditors (the folks paid to actually do the investigation) are calling bullshit. So if you lay down a list of "these are all the objective things that were complained about, but after an investigation, none of them are found to have any merit", what exactly are you saying?
      m0o0o0o0o
  • That's a firing offense

    If the unnamed execs knew of problems with the deal, they should have relayed their concerns to the CEO immediately.

    I wonder if this story isn't a plant, though; designed to take some heat off of Meg Whitman.
    John L. Ries
  • Culture of deceit and mistrust

    One has to wonder whether this debacle is related to HP's culture of internal deceit and mistrust manifested in scandal after scandal over the past few years. The worst of these, IMO, was when execs bugged each other's phones/offices. HP is a company at war with itself.
    jdrch