Hewlett-Packard just announced that the U.S. Department of Justice is investigating its October 2011 acquisition of Autonomy. HP is alleging that Autonomy’s accountants inflated the company value through accounting tricks.
In October 2011, Hewlett-Packard acquired the U.K.-based software company Autonomy, which was the U.K.'s largest independent software maker that produced all manner of management products. Shareholders of Autonomy voted and accepted the 10.3 billion dollar offer from HP, which came to about 42.11 dollars (U.S.) per share.
The deal for the acquisition was orchestrated by former CEO Leo Apotheker, but even at the time of the acquisition many experts felt the price was set too high. Soon after the deal went into effect HP appointed former eBay chief Meg Whitman as the New CEO. Whitman stood behind the deal and felt the price was accurate.
Now HP is saying that Autonomy’s accountants pulled a fast one on them and is asking the United States Department of Justice to investigate the matter. HP has also provided their findings to the United Kingdom’s Serious Fraud Office along with filing a 10-K form with the U.S. based Securities Exchange Commission.
“As a result of the findings of an ongoing investigation, HP has provided information to the U.K. Serious Fraud Office, the U.S. Department of Justice and the SEC related to the accounting improprieties, disclosure failures and misrepresentations at Autonomy that occurred prior to and in connection with HP's acquisition of Autonomy,” HP says in part on their 10-K form. “On November 21, 2012, representatives of the U.S. Department of Justice advised HP that they had opened an investigation relating to Autonomy. HP is cooperating with the three investigating agencies.”
On November 20, 2012 HP disclosed an $8.8 billion write-down. Of that 8.8 billion, HP says that 5 billion was linked to what HP determined to be “serious accounting improprieties, misrepresentation and disclosure failures discovered by an internal investigation by HP and forensic review into Autonomy’s accounting practices prior to its acquisition by HP.”
HP made very clear in their press release how displeased the company was with Autonomy. The public notice further stated they were highly disappointed with the many members of Autonomy’s former management team. HP writes, “These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal.”
On Friday, December 28, 2012 Autonomy's founder, Mike Lynch, denounced the claims made by HP and published an on-line rebuke of HP’s accusations at www.autonomyaccounts.org, a website apparently made specifically to counter HP’s claims.
“It is extremely disappointing that HP has again failed to provide a detailed calculation of its $5 billion write down of Autonomy, or publish any explanation of the serious allegations,” Lynch writes. “Furthermore, it is now less clear how much of the $5 billion write down is in fact being attributed to the alleged accounting issues…Simply put, these allegations are false, and in the absence of further detail we cannot understand what HP believes to be the basis for them.”
This latest crisis with HP is just part of a long string of financial problems beginning in 2012 when the Chinese based Lenovo Corporation beat out HP to become the world's leader in PC manufacturing. Since HP's initial downfall, the company has been aggressively trying to reshape itself and remain competitive.
In August 2011 HP announced they would be exiting the smartphone and tablet computer business HP mainly markets their products to everyday consumers and households, small- to medium-sized businesses. While the company made numerous changes, sales still waned and in May 2012, HP announced they would be laying off some 27 thousand employees but that figured then jumped to 29 thousand in July of 2012.
Whether the Justice Department discovers anything irregular with Autonomy remains to be seen. One thing for certain is that this latest scandal involving HP will only hinder the company's efforts in reclaiming a top spot in a highly competitive electronic world.