Article by Robert Armstrong and Stuart Kirk
http://www.ft.com/cms/s/2/7a52adb4-b70d-11e2-a249-00144feabdc0.html#axzz2SniveAA5
Hewlett-Packard appears to be in a difficult position whatever the court rules on its disastrous purchase of the software group. Losing $8.8 Billion is not easy to do but HP has managed to do just that. Since acquiring Autonomy in 2011 for $11.6 Billion they had to write off 80% of the purchase price a year later. HP’s boss at the time of the deal, departed almost immediately afterwards and Raymond Lane, the board’s chairman at the time, and two other directors followed him last month.
HP, however, attributed more than $5 Billion of the writedown to “accounting improprieties, disclosure failures and outright misrepresentations”. It alleges that low-margin hardware sales were disguised as high-margin software sales and that products were sold into the distribution channel when there was no buyer.
HP shareholders filed a lawsuit, expected to be strenuously contested, against the company’s board and its advisers – Barclays Capital and Perella Weinberg – in a US District Court last week. It alleges that HP ignored warnings of accounting improprieties and weak growth at Autonomy, then ran an abbreviated due-diligence process, and is claiming to have discovered the improprieties only after the fact to cover for its grotesque overpayment.
So the core question is whether Autonomy’s growth was, in quantity or quality, not what it seemed to be, and whether HP had any reasons to suspect as much. During Autonomy’s latter years as an independent company, a small group of analysts – notably Paul Morland of Peel Hunt and Daud Khan of JPMorgan Cazenove – argued that growth looked overstated. Autonomy responded in detail. That debate takes on new resonance now.
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