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Who is to blame for the HP's £5.5bn writedown of Autonomy?

Derek du Preez | Nov. 26, 2012
HP’s £5.5 billion writedown of Autonomy and the shock fraud allegations that claim it misled HP prior to it being acquired for £6.5 billion in 2011 has resulted in the IT industry pointing the finger of blame in all possible directions.

HP's £5.5 billion writedown of Autonomy and the shock fraud allegations that claim it misled HP prior to it being acquired for £6.5 billion in 2011 has resulted in the IT industry pointing the finger of blame in all possible directions.

What do we know for certain? HP said on Tuesday (see Chris Kanarcus' story here) that an internal investigation had found that Autonomy was substantially overvalued at the time of acquisition due to the misstatement of Autonomy's financial performance, including its revenue, core growth rate and gross margins, and the misrepresentation of its business mix.

HP said there had been a "wilful effort to mislead investors and potential buyers". Both the US Securities and Exchange Commission and the UK's Serious Fraud Office have been alerted to the claims.

HP CEO Meg Whitman kicked off the blame-game by saying: "The two people who should have been held responsible are gone," referring to previous CEO Leo Apotheker and former chief strategy officer, Shane Robinson.

She added: "This will take a long time to work through, but we're committed to seeking redress. I'm expecting this is going to be a multi-year journey through the courts."

Autonomy's founder and CEO, Mike Lynch, who left HP in April of this year, true to form came out fighting and strongly denied the allegations. He said in an interview with the Wall Street Journal that he wasn't aware of the claims before they were publicly announced, and said that he had effectively been 'ambushed'.

Lynch completely denied the claims and instantly reverted the blame back to HP, Whitman and the auditors that were involved with the acquisition, Deloitte.

He said: "I can't understand how you can write down £5.5 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."

"I think it calls into question the credibility of today's announcement. You are being asked to believe that an elephant that big was missed by all these firms and 300 people and it only came to light a year later."

Deloitte did not have comment at the time of publication.

Lynch also suggested that HP is trying to divert attention away from the fact that it is suffering huge losses (£4.3 billion in the fourth quarter).

Lynch continued: "The only concept I have of it is that it does seem to be coincident with them releasing the worst set of results in their 70-year company history. I think what has happened here is that they have got themselves in a mess.

"They did the acquisition of EDS, they had to write that one down. They had to write Palm down. When Autonomy was acquired it was done by a CEO who wanted to get rid of various divisions of that business and lead with software."

 

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