HP takes US$8.8 billion hit; cries foul on Autonomy deal

Partners hoping that Hewlett-Packard Co. (NYSE: HPQ) may have gotten the worst of the bad news behind it woke up to a shock today, with news the vendor is taking an US$8.8 billion charge related to its US$10.2 billion acquisition of UK software company Autonomy in August 2011 and allegations by HP that the vendor was misled about the value of the company.

Needless to say, HP missed its fourth quarter results, reporting a net loss of US$6.9 billion. The vendor said most of the non-cash US$8.8 billion impairment charge, more than US$5 billion, is linked to “serious accounting improprieties, misrepresentation and disclosure failures” discovered following an HP investigation and forensic review of Autonomy’s accounting practices before HP bought the company.

In a statement, HP said it launched the investigation after a senior member of Autonomy’s leadership team came forward with information following Autonomy founder Mike Lynch’s departure from HP. PricewaterhouseCoopers was engaged to conduct a forensic review.

“HP now believes that Autonomy was substantially overvalued at the time of its acquisition due to the misstatement of Autonomy’s financial performance, including its revenue, core growth rate and gross margins, and the misrepresentation of its business mix,” said HP in a statement. “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. These misrepresentations and lack of disclosure severely impacted HP management’s ability to fairly value Autonomy at the time of the deal.”

According to a report by Reuters Autonomy founder Lynch has “flatly rejected” the HP charges. Former HP CEO Leo Apotheker, who oversaw the Autonomy deal, told the Wall Street Journal he’s “both stunned and disappointed” to learn of the alleged improprieties.

HP said it has referred the matter to securities regulators in the U.S. and U.K. and is also preparing civil action “against various parties” to recoup shareholder losses, promising to “aggressively” pursue the matter.

It’s a latest in a long line of blows for HP and its partners. CEO Meg Whitman warned the company’s turnaround would be slow in October, following a major write-down related to its EDS Corp. acquisition. Major layoffs over the past year have accompanied the restructuring. All told HP will book a loss of US$12.7 billion on the year. And then there was the turbulent leadership of former CEO Leo Apotheker, from the aborted musing about selling the personal systems group to the Autonomy acquisition itself.

Would you recommend this article?


Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.

Jim Love, Chief Content Officer, IT World Canada

Featured Download

Jeff Jedras
Jeff Jedras
A veteran technology and business journalist, Jeff Jedras began his career in technology journalism in the late 1990s, covering the booming (and later busting) Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal, as well as everything from municipal politics to real estate. He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada. He would go on to cover the channel as an assistant editor with CDN. His writing has appeared in the Vancouver Sun, the Ottawa Citizen and a wide range of industry trade publications.

Related Tech News

Featured Tech Jobs


CDN in your inbox

CDN delivers a critical analysis of the competitive landscape detailing both the challenges and opportunities facing solution providers. CDN's email newsletter details the most important news and commentary from the channel.