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back to article HP knew Autonomy was a duff buy, claim HP shareholders in $1bn suit

HP ignored numerous warning signs about the state of Autonomy's finances and accounting irregularities at the firm before acquiring it for $11bn, shareholders have alleged in a $1bn lawsuit. The investors are suing HP's current CEO Meg Whitman, her predecessor Leo Apotheker, former HP chairman Ray Lane and Autonomy founder Mike …

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Not the canine testes after all?

Autonomy exposed as not being quite the apiarian patellofemoral joint it was made out to be? Surely not? That nice HP salesman was so convincing. He cried when we told him we couldn't afford it.

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No Shit Sherlock

Has there EVER been a $Bn acquisition on another IT company that actually made sense from a financial, rather than a CEO ego, point of view? ebay/skype, Hp/Autonomy, Google/Instagram etc

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Re: No Shit Sherlock

Google/Instagram? Facebook/Instagram you mean? Or did you mean Google/YouTube?

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Anonymous Coward

Re: No Shit Sherlock

Yes

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Re: No Shit Sherlock

The odd one, I'd say. Youtube was worth the money in extending Google's ubiquity beyond text. Lenovo did well out of iBMs laptop business too.

On the whole, though, I'm amazed shareholders tolerate this kind of thing. It wastes untold billions of their money.

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Trollface

Re: No Shit Sherlock

Microsoft/AQuantive: $6.2bn writedown last year

Microsoft/Skype: $8bn writedown waiting to happen

Microsoft/Nokia: $XXbn writedown in 2015.

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Something smells

This deal was rotten from the start.

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Boffin

Re: Something smells

"This deal was rotten from the start."

That's as maybe, but the example given of Autonomy trading with VMS Automation is complete rubbish. In both cases the companies should treat the revenue as top line sales, and show the cost in the sales, general and administrative (SG&A) categories. To net off the revenues just because there's reciprocal trade would only be appropriate within the same group, and that doesn't appear to be the case here.

Look at how the same sort of reciprocal trade would be treated elsewhere. If a power company buys a £5m alternator from a company whom it sells a similar value of gas and electricity to, you'd expect the turnover of both companies to increase, and the costs to appear elsewhere (probably on the balance sheet of the power company, and cost of sales for the equipment maker). If outsiders analyse purely on top line growth, that's their problem for being idiots, not Autonomy's, who (on this small example) were complying with UK and IFRS. And I'd be very surprised if US GAAP says anything about discounting the value of any sales to companies whom you've purchased things from. The only case the shareholders have regarding the VMS deal is if neither company actually needed the software - but given the $4m disparity, and the nature of their businesses that looks improbable.

Let's be honest, this legal action is just US legal carpet-bagging, which given their fundamentally flawed legal system is business as usual over there.

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Re: Something smells

Not quite - if the fair value of the transactions were say, $1m and $5m and both companies 'upped' the price to each other with a similar net of the $4m difference then it is accounting tomfoolery. Not saying that is what has happened in this case but just to make the point that sale value does not always equal real revenue.

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Ferranti/International Signal & Control?

About time Britain got its own back. Nice.

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Anonymous Coward

It was obviously a terrible idea from the start, as buying Autonomy was just an awful idea regardless of price. But it's hard to comprehend how HP would deliberately sabotage themselves out of sheer malicious hatred for their shareholders or from some kind of perverse self-destructive joy, so I have to assume they were just being outrageously egregiously stupid in their desperate urge to come up with new business directions.

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Winners?

Who wins out on this deal? Say the suit is successful aren't they just knocking $1b value off their current holdings? It seems kind if like suing yourself... Maybe I'm just not understanding something.

At any rate, if financial shenanigans are the heart of the suit it'll be pretty easy to shift that blame over to the auditors. In the pass the blame game it'll be the auditors that are left holding the bag.

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Re: Winners? @Don

It's not HP that is being sued. It's the named parties, "HP's current CEO Meg Whitman, her predecessor Leo Apotheker, former HP chairman Ray Lane and Autonomy founder Mike Lynch, along with other senior execs and HP's banking aides, Barclays Capital and Perella Weinberg Partners."

If the defendants lose, they will personally (in the case of the individuals), or the companies named, have to find whatever the court deems suitable recompense. It should not cost HP anything, so the only damage will be reputational. That's the problem of being a senior officer in a US company. You have a fiduciary duty to the shareholders, which puts you on the spot if they are not happy.

I don't know about the US, but I believe that it is pretty difficult to make anything stick to the auditors, because they are acting as agents, and unless negligence or deliberate fraud is proved, can absolve themselves of blame.

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Anonymous Coward

Re: Winners? @Don

Actually if the named parties do lose, then HP (or their insurers) will pay on behalf of the HP board members.

This writedown will come back to haunt everyone involved - get your popcorn ready...

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Meh

Re: Winners? @Don

But the winners are the lawyers, if they manage to make it stick. And for the complainant's and their lawyers there's no downside if they lose, other than their own time. In most civilised countries if you sue somebody and lose, you cop their legal bill, but not so in Merkin Land.

But it's a fair question why any shareholders would give their case to the lawyers. For the complainants, either they've sold their stock, and thus don't care what impact a win would have on the company and its remaining shareholders; Or If they do still hold, then the hope is a payout from the D&O insurers, and a change of direction (and possibly board members) that would give the shares a quick boost - at which point they sell.

So for former shareholders the rationale of joining the complaint is retributional and loss recovery, for current shareholders it would be a sophisticated form of ramping.

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Re: then HP (or their insurers)

Not necessarily HP's insurers, but some insurance company somewhere. Although yes, the company usually purchase insurance against this sort of thing for their members in the US. It's only prudent is a lawsuit happy country. The possible exception is if they can prove willful/gross negligence on the part of the defendants.

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such a waste

such a waste of $$, wish they would of pumped that $10B into other things like mobile(RIP WebOS), even Vertica for big data.

Now HP is dumping even more cash into Autonomy to try to save face.

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Headmaster

Re: such a waste

"would of"

<omitted>

"would have"

There, it's not difficult, is it?

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Re: such a waste

"would of"

While the corrrespondent clearly means "would have", better grammar in the chosen context would have been "had". There is in the text a god awful two-fold grammatical error.

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Re: such a waste

While the corrrespondent clearly means "would have", better grammar in the chosen context would have been "had". There is in the text a god awful two-fold grammatical error.

I'm no prescriptivist, and I'll note that the use of "would have" for the subjunctive mood[1] rather than the conditional has become very common at least in US English. For example:

"If Alice would have gotten her gun, she would have shot Bob's ass."

is now a common construction here. Traditionally, of course, "would have" was used to indicate the conditional, and "had" for the subjunctive:

"If Alice had [or 'Had Alice'] gotten her gun, she would have shot Bob's ass."

So from a purely descriptivist point of view, the "subjunctive would" has arguably become so common that it's merely dialectical, and not a nonstandard usage or grammatical misapplication.

But I agree it grates, particularly when combined with the of/have homophone error.

[1] Such as it is, in English. Some grammarians argue that (modern) English has no subjunctive mood proper, and the use of the "would have" copula and similar constructions should really be considered something like subjunctive adverbial phrases. Whatevs.

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why did they leave out KPMG?

Just asking?

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Re: why did they leave out KPMG?

My guess would be this bit from the article:

KPMG has denied doing a full audit, saying its review was limited to publicly available documents and it never audited Autonomy or looked at Deloitte's work.

You can pretty much bet KPMG will be able to show exactly what they were contracted to do, and that the alleged work isn't there. Because if it had been there, KPMG would have made a boatload more money than just reviewing the publicly available information. Also, their lawyers are probably even better paid than HP's are.

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Anonymous Coward

Never underestimate the power of stupidity (and money)

Goes to show how incompetent and lazy the HP board is. Everyone and their dog knew Autonomy was way overpriced, but the industry champions on the HP board were not aware and were too busy lauding themselves to actually look at the books themselves.

HP is being run like a hedge fund, shouldnt someone tell the board that its actually an IT hardware company ?

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Classic

Hope this goes the same way as that other classic case of $bn round-tripping:

http://articles.marketwatch.com/2008-05-19/news/30696837_1_steven-rindner-mark-wovsaniker-joseph-ripp

http://news.cnet.com/Time-Warner-settles-fraud-charges-over-online-ads/2100-1030_3-5628271.html

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