HP CEO Meg Whitman: 10 Shocking Statements On Autonomy5:19 PM EST Mon. Nov. 26, 2012
HP CEO Meg Whitman stunned both investors and partners last week when she announced that HP was taking an $8.8 billion charge after discovering what she called "serious accounting improprieties" by Autonomy, the cloud computing enterprise software company HP acquired last year for $11.1 billion. The news sent HP shares down 12 percent to $11.71, the lowest level in more than a decade.
Here are 10 shocking statements from Whitman's conference call with Wall Street analysts and a one on one with CNBC.
In an interview with CNBC, Whitman said she regrets voting for the $11.1 billion Autonomy acquisition. "I regret that I voted for this deal," Whitman said. "But we are where we are and now what we need to do is turn this over to the authorities, seek redress on behalf of HP shareholders to recoup what we can."
In a conference call with Wall Street analysts, Whitman pointed the finger at both former CEO Leo Apotheker and Former Head of Strategy Shane Robison. "Really the two people that should have been held responsible are gone and that's the way I see it right now, so I feel good about sort of the stability of the leadership."
In an interview with CNBC, Whitman also pointed the finger at accounting giant Deloitte, Autonomy's accounting firm that has "categorically" denied it had any knowledge of accounting improprieties at Autonomy. "Well obviously with 20/20 hindsight we are disappointed by this news," she said. "What I will tell you is our due diligence was thorough. We relied on audited financials by Deloitte, not exactly Brand X accounting firm, and that is what you do when you are on a board; you rely on the recommendations of management and the financials audited by a legitimate financial accounting firm."
(Deloitte CEO Barry Salzberg pictured)
Whitman told Wall Street analysts that the HP Board of Directors did "extensive due diligence" on the Autonomy acquisition. "Most of the board was here and voted for this deal and we feel terribly about that," Whitman said. "What I will say is the Board relied on audited financials, audited by Deloitte, not Brand X accounting firm but Deloitte and by the way, during our very extensive due diligence process, we hired KMPG to audit Deloitte, and neither of them saw what we now see after someone came forward to point us in the right direction."
Whitman told Wall Street analysts at the time the deal was completed due diligence for acquisitions reported to the head of strategy rather than to HP's CFO Cathie Lesjak who reportedly raised objections to the acquisition before HP's board of directors. "At the time when I came to the company, I was surprised to find that due diligence and M&A reported to strategy as opposed to the chief financial officer," she told analysts. "I've never seen that before in my career and that's a decision I made [to change HP procedures so due diligence now reports to the CFO] right away before I knew any of this."
In an interview with CNBC, Whitman said that HP first heard of potential accounting issues after the $11.1 billion deal was announced last August. "After we announced the acquisition there were a number of blogs that came to the fore about potential issues at Autonomy," she said. "The former management team ran that to ground and came up with the conclusion that there was nothing there."
Whitman told Wall Street analysts that a member of Autonomy's leadership team told HP about the alleged accounting improprieties. "These improprieties were discovered through an internal investigation after a senior member of Autonomy's leadership team came forward following the departure of [Autonomy founder and former CEO] Mike Lynch on May 23," she said. "Based on this information, HP initiated an intense internal investigation into the allegations including a third-party forensic review of Autonomy's historical financial results."
In an interview with CNBC, Whitman said Autonomy margins are considerably down from the original 40 to 45 percent range. "We think it is going to be an important part of HP Software's growth strategy, but it is not as valuable as we had believed it to be because revenues are lower, growth rate, we believe, will be slower, and the margin is not what was reported, which was in a 40 to 45 percent range," she told CNBC. "We now think more of a 28 to 30 percent range."
"Our internal investigation is ongoing and we've got more work to do there but we have turned over the investigation to the SEC Enforcement Division in the United States and the Serious Fraud Office in the U.K. and that process is underway," Whitman told Wall Street analysts.
Whitman says the bid to recoup funds in the wake of what HP has described as Autonomy accounting improprieties will be a multi-year journey. "This will take a long time to work through, but we are committed to seeking redress for the benefit of our shareholders and it will take some time," she told Wall Street analysts. "I suspect this is a multi-year journey through the courts in both countries."