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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
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