Good luck HP...
...maybe RBS can get its money back for ABN Amro too? Caveat emptor, alas.
Mike Lynch didn't fall out of love with Hewlett-Packard, it was HP which didn't know what it wanted. So says "Brit Bill Gates" Mike Lynch, who has even suggested HP's initial advances under then chief executive Leo Apotheker were unsolicited - possibly even unwanted - and that he was powerless to stop the acquisition. …
...maybe RBS can get its money back for ABN Amro too? Caveat emptor, alas.
Didn't HP exercise due diligence prior to purchase?
If they did, then Autonomy's concealing of a $5B 'mis-statement' is simply breathtaking: if they did not, then they should have.
Al in all, it's beginning to look like the 'due diligence' was either overdue or not quite diligent enough.
Yes, HP DID do due diligence, quite a lot of it by all accounts. And apparently nothing untoward was found.
So, either the accounting problems with Autonomy were so well hidden that due diligence didn't catch them, or the firm(s) (there were several involved) didn't do due diligence properly.
They willing paid 60% over the price the market thought it was worth prior to the deal being announced. Surely that rang alarm bells _somewhere_ in HP.
Given that the due diligence is typically conducted by the usual suspects, I would be inclined to start looking for answers there. After all, these are the same setups responsible for validating the HP corporate accounts at the end of the year, so there is considerable risk exposure if these companies are not up to scratch.
There is no way a company can hide something of this magnitude without a decent auditor getting wind of it, so I only see two answers that make sense: either they didn't do the job, or they were told the desired outcome and went along with it, the sort of approach that helped Enron for a while..
The only other option is that HP full well knew what they were buying but were for some reason intent on pushing the deal through. If that is true and it could be proven, the next shareholder meeting could get interesting..
Or of course they didn't exist and this is a blame evasion tactic by HP. Offering such a premium on share price - come on, someone was desperate.
'There is no way a company can hide something of this magnitude without a decent auditor getting wind of it, so I only see two answers that make sense: either they didn't do the job, or they were told the desired outcome and went along with it, the sort of approach that helped Enron for a while..'
Agreed but we don't know what the magnitude of the problem is/was; HP wrote down $5.2bn of the value of Autonomy (rest of the write-down was due to stock price reductions) but have provided no details on how they got to this number. Others have mentioned amounts in the low hundreds of millions of dollars being recognised as revenue incorrectly - I can see this sort of thing not being picked up by auditors.
A bit of pedantry.
Enron wasn't just the fault of the auditor, more the fault of the US Accounting rules. It used to hide (legally) losses in Special Purpose Companies that were not consolidated. When it messed up its sums on some, they should have been consolidated, Arthur Andersen insisted they were, and the ensuing mess caused the downfall of both AA and Enron. A weak auditor would have let them pass, and not consolidated them. (that's really too brief to be accurate, but gives the gist).
That's not to say that auditors can get too close to their clients, or that auditors shouldn't miss things, it just that Enron isn't quite as black and white as is made out.
The purpose of an auditor is a "watchdog" and not a "bloodhound" (thanks to Lord Justice Lopes).
Due diligence is different from an audit, albeit as another describes, usually being done by "the usual suspects". if the due diligence wasn't all that diligent, then go ahead and sue the accountant who messed it up.
I'm sure you would have done well on jury for Goldman Sachs in the Dragon Soft trial.
"Diligence? We just meant we were diligently speeding up the deal to collect our check."
"Others have mentioned amounts in the low hundreds of millions of dollars being recognised as revenue incorrectly"
Which could get you to 5.2Bn if HP are one of these stupid companies that value stuff on revenues (which bears no actual relationship to shareholder value). Which is possible.
How profitable were Autonomy claiming to be when HP bought them, that's the real question. Basically everything else is irrelevant.
Cheating here because I know that their profit in 2011 was $282m so they weren't worth a fraction of what HP *wrote down* much less what they paid in total. But then some people are stupid. My guess is they thought they were buying the technology and I guess patents, but here's the thing - you have no valid area of questioning when you ignore how much money the company is actually making and buy "at any price" to acquire it's tech.
If HP had bought it online in the UK they could have sent it back after 2weeks if they didn't like it
Is pretty much my opinion also.
Somewhere. someone at HP decided that Autonomy was an over priced pig and needed to be slaughtered. I would not be surprised that a decision to endure a single quarter's worth of bad press, and hope it all goes away must have been the deciding factor. But, from a stockholder's point of view, someone should be roasted over the coals.
Unfortunately, those people (namely Leo A) aren't there any more.
One question, if you were considering Leo A for either a board seat, or an executive position; would you bring him on???
I know that I certainly would not.
It was common knowledge in the financial community that Autonomy's accounts were rather funky, and that HP were overpaying. This is not hindsight - it was perfectly clear to everyone at the time. This article here pretty much explains what was going on: http://dealbreaker.com/2013/01/h-p-wasnt-going-to-let-a-little-fraud-stand-in-the-way-of-acquiring-autonomy/
HP are retards.
And of course its absolutely brilliant for an incompetent board to push regulators all over the world to expose just how shoddy, lazy, and incompetent HP management is not just once but for years and years on end all the while spending money on lawyers to boot. The HP Way.
(Edit: Could be worse. I guess at least the board didn't obviously break any laws this time (no illegal social engineering like in the past) just the ethics of safeguarding share holder money).
HP were vastly overpaying even if you take Autonomy's accounts at face value.
Similarly ebay massively overpaid for Skype - $Bn for a company with a few $M revenue
Being stupid doesn't mean there was fraud
No wonder he and the HP CEO at the time got on well, they were both in the numbers boosting business - as seen in SAP. In the information retrieval business Autonomy's numbers were always treated with suspicion, buyers had to buy (unspecified) consultancy in order to make the software work. The whole (potential) cost was booked as income. As to the 'diligence' (an oxymoron if ever there was one, when applied to auditors) the technique of pricing in future income is 'acceptable' in the books. Of course you need to know what the real potential for income is, somethng I wouldn't expect from yer average PWC or Deloitte moron.
Perhaps to only way to insure that 'due diligence' is properly carried out is to employ the BOFH in that role.
Between his whips and a cattle prod, the truth will prevail.
If you don't want to lose control of your company, don't float it on the stock market, it's not rocket surgery. If you own and control your company, no-one can force you to sell it, short of bankruptcy. If you float your company and have it publicly traded, the investors decide what to do with _their_ company.
Or you could do the Facebook scam thing and have supposedly less than 500 shareholders and pretend to still be a private company. The best of both worlds.
Or when you do float it award yourself a majority stake, or have voting & non-voting shares and keep hold of the former or any number of other manoeuvres that let you still call it "my company". Of course you may find that investors then value it less highly since they have to just trust you (or at least trust in a steady supply of bigger fools to take their stock).
The man with whipped cream all over his mouth shouldn't be grumbling that he no longer has any cake...
it's not rocket surgery
It must be the weekend. How does rocket surgery work?
How does rocket surgery work? lots of spanners and screwdrivers, and people with protective gear to mop up the RFNA when you get a leak.
I lie, I assume it's a conflation of "rocket science or brain surgery". It's kind of a portmanteau expression, I guess.
yes, that's exactly what it is. I sometimes use it myself, because It's amusing.
It's like rocket science and brain surgery, but much more complicated.
Yep, unless you need money. Lynch needed to sell the co in order to get the money to keep the show on the road.
This might answer the question :)
"as soon as you are a pubic company in the UK"
That should command a bit of a premium!!
Traditionally, I suppose, board members are appointed through more or less "political" reasons. Nice and experienced people within the industry. Knowledge about what the company does or perhaps should do is not part of that. This, of course, is quite alright as long as the company is doing well and are run by people who know what they are doing. The problem starts when, suddenly, the board has to make decisions. The most difficult one must be about suddenly having to appoint a new CEO. Appointing somebody from within the company (somebody with knowledge about the company and what it is doing) is outside any consideration as it would mean that somebody "below" the board would take the helm. Better then to appoint an outsider and keep the power in the board. Simple logic really. I have "nothing" against the old CEO of old Nokia, Jorma Ollila, even if I believe his happily falling a sleep was the beginning of Nokia's problems to day. But why, in the hell, was he appointed a board member at Shell. Any possible knowledge about Shell and it's business he could have learned working with Nokia. Se the problem. Perhaps he never learned anything about Nokia but something about being a CEO and important for the board at Shell. Now, quite frankly, I don't believe much in such a "chance". Then again, if the top of the brass, in big companies, are worthless, when needed, perhaps the better in the long run.
board of directors who must number amongst the most inept in American corporate history.
They have totally abandoned the principals of the founders Messrs. Hewlett and Packard. The resultant mess and corporate meandering totally vindicates the concept used by the founders from the beginning.
$11Bn, of which only 40% was the current stock value if they paid a 60% premium. The maths still looks pants if the company was worth $4.4Bn, and there's a $5Bn dollar hole in the value. If I grasp this correctly, HP are trying to claim that they overpaid by $6.6Bn instead of $1.6BN. Either way, someone somewhere is having trouble fitting all those suitcases full of cash in their Learjet.
Come on, Reg...
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