Page 2 of 2
HP's board of directors deserves a large amount of the blame for green-lighting the high-priced Autonomy acquisition. "What was the board thinking?" asked the CEO. "They let this guy Leo came in with a mission to sink the ship. Why would you pay $ billion for this company? The Autonomy guys were laughing all the way to the bank. HP isn't even using Autonomy itself from what I know. It is inexcusable how much they paid for Autonomy. "
HP acquired Autonomy in October of last year. The acquisition was initiated in August by then-CEO Leo Apotheker in a bid to expand HP's miniscule software sales. Apotheker was fired a little more than a month later, but his replacement, Meg Whitman, went ahead with the deal.
While some observers at the time saw the logic of HP's acquiring Autonomy as part of an effort to expand its software product offerings, others criticized the amount HP was paying.
HP CFO Cathie Lesjak had reportedly objected to the deal at the time, citing the high price tag, which was 11 times the revenue of Autonomy.
Oracle CEO Larry Ellison even claimed that Autonomy had been shopped to Oracle, but Oracle decided against bidding for the company. "Autonomy was shopped to us," Ellison said during an earnings call in September 2011. "We looked at the price and thought it was absurdly high. We had no interest in making the Autonomy acquisition."
HP said the $8.8 billion impairment charge related to Autonomy includes $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," HP said.
HP launched the internal investigation "after a senior member of Autonomy's leadership team came forward, following the departure of Autonomy founder Mike Lynch, alleging there had been a series of questionable accounting and business practices at Autonomy prior to the acquisition by HP. This individual provided numerous details about which HP previously had no knowledge or visibility," HP said in its statement.
As a result of the investigation "HP now believes that Autonomy was substantially overvalued at the time of its acquisition due to misstatement of Autonomy's financial performance, including its revenue, core growth rate and gross margins, and the misrepresentation of its business mix," HP said.
"This appears to have been 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.
STEVE BURKE contributed to this story.
PUBLISHED NOV. 20, 2012