HP and its chief Meg Whitman will have to face claims from a shareholder class action lawsuit alleging the exec and her firm knew statements from Autonomy's management were misleading before the acquisition. US District Judge Charles Breyer ruled that investors can go ahead with claims against the company and Whitman, saying …
Yay! Directors will be held to account
Except that they won't.
All companies pay for directors'[ and officers' insurance, and short of a criminal investigation and conviction, this won't harm the lightweights on HP's board, won't actually reimburse the shareholders, and will only make a bunch of lawyers rich. Big fines will merely redistribute wealth amongst the shareholders (ie claimants get money taking out of the holdings of all shareholders), and do we expect Teflon Meg and her fellow directors to be tarnished by their own ineptitude? Oh no.
But even if it's a big fine, Meg can just ratchet up the savings target, sack another few tens of thousands of front liners, offer an even crapper service to corporate clients, and help herself to some more options.
Yup. That's why she got the job - to be able to deal with this kind of shit.
I agree it's not perfect - but that's modern business and corporate governance for you. Even if "teflon Meg" did get the boot, she'd still end up as a VP or senior exec somewhere else.
"it had substantially overpaid for the software firm."
" hundreds of millions of dollars of Autonomy's pre-acquisition revenue had been improperly recorded, that key documents were missing and that "
So the question is why did it pay at all if the paperwork was incomplete and some (at least) was suspect.
Thumbs up for the judge on this.
Let's be clear. HP's decision to buy Autonomy effectively took $10Bn, piled it up and burned it.
It's money that could not be used for more useful tasks within the company.
It's not money that could be used to add to the dividend to stockholders.
Technically the money could have been used for a multitude of purposes. I suspect you meant that it would have been better used within the company rather than distributed to shareholders.
1) Let's be clear. HP's decision to buy Autonomy effectively took $10Bn, piled it up and burned it.
2) It's money that could not be used for more useful tasks within the company.
3) It's not money that could be used to add to the dividend to stockholders.
OK, I agree with the first statement.
I think statements 2 and 3 would better read as:
2) It's money that could
not be used for more useful tasks have been put to better use within the company.
not money that could be used to add to the dividend to stockholders.
Both of these revised statements assume that one agrees with the idea that the Autonomy purchase was a bad investment in the first place.
"HP's decision to buy Autonomy effectively took $10Bn, piled it up and burned it."
ER no, it put it in Mike Lunch's pocketsesss and any other autonomy shareholders pockets.
Or parties Autonomy may have 'hired' as 'consultants'
Consider the following hypothetical problem.
You are running a large publicly owned company along with some fellow directors.
The shareholders get irritated if you pay yourselves more than a couple of million. The plebs. However they get very excited if you spend their money on something else.
So you go scouting for a 'story' This 'story' should be something that will superficially boost the share price of your employers. Because as directors you all have shares and share options. It only has to do it long enough to allow you to sell. The the share price can collapse and you buy back in.
You need a willing partner. So you find a firm which is more or less owned by one or two guys. Its books merely need look reasonable. They can be cooked in the short term goodwill written up as having real value as can IP. Whatever.
You make the acquisition. The lawyers underwriters financial advisers and accountants all make good money. The little firm makes good money. Your stock soars, you sell shares and the share price slowly drifts back.
That's what happened to me, anyway. Although it took a bit of time to realise what was going on. Then I sold my shares too and shut up.
The following I didn't think of at the time.
But what's this? You have been outsmarted by the little firm? how DARE they do what you were doing, make their own story and sell it to you? And you haven't a leg to stand on. You did the due diligence, but you asked the guys not to look to hard didn't you? In case you didn't get your 'story for the markets'. Now you have been out-sharked by a piranha! Instead of gradually writing down the useless asset over ten years, you've written 90% of it off in year one! and your stock is in free fall. You can't sell now! Worse, people are beginning to question your competence!
You are truly shafted. IF you start blaming the auditors, they probably have documentary evidence telling them to 'not look to hard' on your instructions.
If you blame the company you bought, it makes your due diligence look incompetent, and therefore you.
What you want is a three year long lawsuit that ends up with no one actually being any the wiser, in which time you may be able to burnish your tarnished reputation...
"So the question is why did it pay at all if the paperwork was incomplete and some (at least) was suspect."
Actually, the question is more basic than that. Even if everything was above board and things were as rosy as they were presented, how on earth did thay figure that Autonomy was worth $10B anyway?
Paying hugely over the odds was their first mistake, it was merely made worse by the dodgy accounting shenanigans.
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