HP To Lynch: Get Ready To Testify4:57 PM EST Tue. Nov. 27, 2012
Hewlett-Packard has a message for Autonomy co-founder and CEO Mike Lynch: prepare to answer accounting issues related to HP's $11.1 billion purchase of Autonomy in the legal arena under the "penalty of perjury."
"While Dr. Lynch is eager for a debate, we believe the legal process is the correct method in which to bring out the facts and take action on behalf of our shareholders," HP said in a prepared statement responding to Lynch's call for more details on HP's claims of accounting improprieties at Autonomy. "In that setting we look forward to hearing Dr. Lynch and other former Autonomy employees answer questions under the penalty of perjury."
HP's response came after Lynch, who HP allegedly fired last May in the wake of disappointing Autonomy software sales, issued an open letter to the HP board of directors demanding that HP release specific details regarding the alleged accounting improprieties at Autonomy.
HP last week stunned investors and partners when it took an $8.8 billion impairment charge related to Autonomy including $5 billion "linked to serious accounting improprieties, misrepresentation and disclosure failures" discovered by an internal investigation by HP and forensic review into Autonomy's accounting practices."
HP said the balance of the impairment charge is linked to the recent trading value of HP stock "and headwinds against anticipated synergies and marketplace performance."
Lynch, for his part, wants to settle the matter with HP in a public forum. "Having no details beyond the limited public information provided last week, and still with no further contact from you, I am writing today to ask you, the board of HP, for immediate and specific explanations for the allegations HP is making," he stated in an open letter to HP's board of directors. "HP should provide me with the interim report and any other documents which you say you have provided to the SEC [Securities and Exchange Commission] and the [U.K.'s] SFO [Securities Fraud Office] so that I can answer whatever is alleged, instead of the selective disclosure of non-material information via background discussions with the media."
NEXT: HP Ready To Meet Former Autonomy CEO In Court
HP for its part responded with a statement that pointed to an "intense internal investigation into a series of accounting improprieties, disclosure failures and outright misrepresentations that occurred prior to HP’s acquisition of Autonomy."
"We believe we have uncovered extensive evidence of a willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers," HP said in a prepared statement. "The matter is in the hands of the authorities, including the U.K. Serious Fraud Office, the U.S. Securities and Exchange Commission’s Enforcement Division and the U.S. Department of Justice, and we will defer to them as to how they wish to engage with Dr. Lynch. In addition, HP will take legal action against the parties involved at the appropriate time."
Martin Wolf, founder and president of Martin Wolf, a technology services M&A financial services advisor based in San Ramon, Calif., said HP made a big bet with Autonomy that was "fraught with risk."
"Autonomy was a different animal than HP was used to," said Wolf. "It was fraught with risk, integration risk, and built on many, many assumptions on the revenue side. This was a deal done for strategic reasons -- not cost reduction. If you don't know clearly what you bought and/or you don't integrate it properly, you end up with complications."
Wolf said the Autonomy crises raises issues for HP partners. "If you go back a couple of years, solution providers built their businesses on the backs of 800-pound gorillas that were well managed and financed," he said. That is no longer the case particularly with HP, said Wolf. "HP has $11 billion in cash and debt outstanding of approximately $28 billion," he said. "So they have negative cash of approximately $17 billion."
In contrast, Wolf said, HP rival Apple has about $100 billion in cash and marketable securities and no debt. "There's a lot of uncertainty right now that started with [former HP CEO] Leo [Apotheker]," he said.
Several years ago, HP's market capitalization was about $75 billion compared with about $24.4 billion today, said Wolf. That said, Wolf believes that HP CEO Meg Whitman is the right person to lead a turnaround. "I think Whitman is part of the solution," he said. "She is an outsider, very sober, has a technology background, understands markets and HP's market position. I have gotten very favorable feedback about her from senior channel executives, so much so that I wish she was governor of California."
PUBLISHED NOV. 27, 2012