back to article HP crashed Autonomy because US tech titan's top brass 'lost their nerve', says lawyer for ex-CEO Mike Lynch

Hewlett Packard crashed Mike Lynch’s thriving Brit software biz Autonomy into the ground after buying it, the former Autonomy CEO’s barrister told the High Court today. And if there was any accounting fraud on Autonomy's part, as alleged by HP, an awful lot of people would have had to turn a blind eye to it, the lawyer added …

  1. BebopWeBop Silver badge
    Devil

    Now this really

    Needs POPCORN, pots and kettles, incompetence vs. (potentially) sharp trading - although the differences in accounting practice (both crooked) across the Atlantic might have had a part to play......

    1. Voyna i Mor Silver badge

      Re: Now this really

      What happens when courts on either side of the Atlantic come to opposite conclusions on virtually identical cases?

      1. asdf Silver badge

        Re: Now this really

        Wait for both governments to change on appeal?

      2. Anonymous Coward
        Anonymous Coward

        Re: Now this really

        "What happens when courts on either side of the Atlantic come to opposite conclusions on virtually identical cases?"

        TTIP 2.0 happens, and the US takes back control?

        Once Brexit happens and the Yanks over-promoted trade agreement turns out to be the undead remains of TTIP, the UK will presumably have to abide by whatever the US wants.

        https://www.independent.co.uk/voices/comment/what-is-ttip-and-six-reasons-why-the-answer-should-scare-you-9779688.html

        Btw, "independent group" may have been an interesting choice of name for this ambitious young Party Leader in waiting:

        https://www.independent.co.uk/news/uk/politics/embarrassment-for-rising-star-of-labour-and-betting-shop-critic-chuka-umunna-after-he-accepts-20000-8748755.html

        1. Nick Kew Silver badge

          Re: Now this really

          Why doesn't the Indy date its articles? Your TTIP reference is old: that prospective deal died long ago - back in the Obama era - precisely because the EU wouldn't accept US red lines: food safety standards and possibly others. I'm sure I saw that article years ago.

          Interestingly Michael Gove and (reportedly) the prime minister have firmly ruled out lowering food standards post-brexit. So no US trade deal. Lots of potential there for another huge Tory party split.

          1. Anonymous Coward
            Anonymous Coward

            Re: Now this really

            "Your TTIP reference is old"

            Correct. Old, but not necessarily obsolete. Look more carefully, at things like Investor-State Dispute Settlement in the likely TTIP 2.0. How does it compare with TTIP Mark 1?

            "Interestingly Michael Gove and (reportedly) the prime minister have firmly ruled out lowering food standards post-brexit."

            Does anyone give a monkeys what those idiots in Westminster say in public? It's what they *do* (which is often determined by things which are kept out of sight of the voting public) that matters.

            E.g.how many folks are aware that the UK and the US have recently agreed a deal to preserve the City's role in "the world’s multitrillion-pound derivatives market, with the US and the UK controlling 80% of the $594tn (£454tn) a year business – worth more than five times world GDP.

            About a third of the £230tn of derivatives contracts traded in the UK every year come from US companies, more than any other jurisdiction.

            The development comes as Brussels prepares rules that would force clearing houses – financial institutions key to the trading of derivatives – outside the EU to come under the supervision of its regulators."

            Good to see Farage, Rees-Mogg, all the usual suspects, looking after the interests of the great British voting public. Or not, as always.

            1. Roland6 Silver badge

              Re: Now this really

              >"Your TTIP reference is old"

              Correct. Old, but not necessarily obsolete.

              I suggest you also look carefully at what is in the US's initial "proposed trade deal" with a post-Brexit UK, and compare it to TTIP. Additionally, it includes many elements that can be considered to involve the transfer of sovereignty and thus control to the US...

  2. jeffty

    "Losing their nerve" is a common theme in all of HP's acquisitions...

    They buy something, they think they can force it to run the HP way, they destroy whatever made that acquisition an initial success, drive out all the good staff and then eventually write it off as a lost cause and spin it off.

    Lynch isn't wrong there.

    1. Doctor Syntax Silver badge

      Re: "Losing their nerve" is a common theme in all of HP's acquisitions...

      "force it to run the HP way"

      The HP Way? Is there anything left of the HP Way after Carly got at it?

      1. Jellied Eel Silver badge

        Re: "Losing their nerve" is a common theme in all of HP's acquisitions...

        The HP Way?

        You're forced to buy a new licence at 200% the cost of your original purchase price after displaying 150 pages. The chips in the new HP displays are to ensure the best customer experience!

      2. ecofeco Silver badge

        Re: "Losing their nerve" is a common theme in all of HP's acquisitions...

        The "HP Way" was dead the day H&P retired.

        By the time they bought Compaq, it was in full crash mode. Carly just poured more gasoline on the fire is all.

    2. CheesyTheClown

      Re: "Losing their nerve" is a common theme in all of HP's acquisitions...

      I generally recommend to my customers that if they purchase HPe designed and developed products, go for it. But as soon as a company is acquired by either HPe or Cisco, they should see it as a sign they should consider looking for alternatives.

      HPe and Cisco sales people don’t like selling products that take work. Meaning that if they can’t count on making regular bonuses, they lose interest. This is why most HPe and Cisco customers don’t buy what they actually need and end up never getting anything working as it should.

      Even when these companies buy great products, if the sales people can’t figure out how to make them fit their portfolio, they simply won’t.

      Cisco and HPe also lose interest quickly. Many times, both companies have purchased companies producing products targeting new markets. They try to sell their products to their existing customers and their customers who are conservative and are also often backlogged don’t catch on until the development teams of those products have been downsized and placed in a purgatory in India.

      So the moral of the story is... don’t expect a company that is as big as a government, turns over leadership as governments do, and sells mostly to governments to behave any differently than any other dysfunctional government.

  3. Pascal Monett Silver badge
    Mushroom

    Truth squad ?

    To do what, convince people that Meg wasn't responsible ?

    There is a multi-billion dollar deal on the table and I'm supposed to believe they handed it to the intern ?

    For frak's sake I am sick and tired of CEO's finding any pathetic excuse to weasel out of being responsible for what happens while they are at the helm. She gets the pay, so she takes the blame.

    Anything else is pure, unadulterated hypocrisy.

    1. Alister Silver badge

      Re: Truth squad ?

      For frak's sake I am sick and tired of CEO's finding any pathetic excuse to weasel out of being responsible for what happens while they are at the helm.

      Um, Meg wasn't at the helm at the time of the deal, it was Léo Apotheker.

    2. eldakka Silver badge

      Re: Truth squad ?

      Meg wasn't the CEO at the time of the Autonomy purchase. So no, the mutli-billion dollar deal wasn't done by an intern, it was done by the CEO prior to Meg, Leo Apotheker. Meg did oversee the writedown however.

      Reading the wiki page on it, this is funny in a sad/unbelievable type of way:

      Though Apotheker served barely ten months [as CEO before being fired by the board], he received over $13 million in compensation. HP lost more than $30 billion in market capitalization during his tenure.

      Well, that was a well spent $13 million on a CEO!

      1. Hans Neeson-Bumpsadese Silver badge

        Re: Truth squad ?

        Though Apotheker served barely ten months [as CEO before being fired by the board], he received over $13 million in compensation. HP lost more than $30 billion in market capitalization during his tenure.

        Well, that was a well spent $13 million on a CEO!

        HP truly are a bunch of mugs...I would have done that for them for just $10 million

        1. BebopWeBop Silver badge

          Re: Truth squad ?

          For less than that I am sure I could have lost more

          1. Voyna i Mor Silver badge

            Re: Truth squad ?

            It's quite hard to lose a great deal of money, and Apotheker had a rare talent. Look at what Musk does, and the share price stays fairly buoyant.

            If you announced you intended to spend the entire annual profit on hookers and blow, Wall Street traders would probably think that was a smart move and the share price would go up.

    3. Amentheist
      Flame

      Re: Truth squad ?

      The trademark UK & US culture when it comes to business.

  4. a_yank_lurker Silver badge

    Wrong Target?

    Sounds like the wrong target is being sued. KPMG may have pooched their part of the due diligence because of the fees they got for the merger.

    1. This post has been deleted by its author

    2. ecofeco Silver badge

      Re: Wrong Target?

      Dammit. Meant to edit.

      It is possible that KPMG made recommendations that HP ignored.

  5. Anonymous Coward
    Anonymous Coward

    HP(E), and by extension KPMG, should both be lined up and shot over this fvckup. Both would like to point fingers but.. no.

    1. Anonymous Coward
      Anonymous Coward

      I'm not sure KPMG have a part to play:

      "Back in August 2011 when HP was about to buy Autonomy for $11bn, the US megacorp “valued it at that stage on a standalone basis at some $9.5bn but together with synergies at $17bn."

      Autonomy had published an annual report in 2010 and the 2011 numbers were rumoured to be in line with those based on announced growth. KPMG are likely to have reviewed the numbers, agreed they broadly matched what was reported and reported any concerns to the board.

      The question is where did HP come up with it's valuation and synergies - HP clearly thought they were getting a bargain at ~$11bn. That may explain many of their pre-purchase actions.

      1. Anonymous Coward
        Anonymous Coward

        THIS.

        The fact that HP have never gone after KMPG strongly suggests it was a mess of HP's own making. I suspect the due diligence report said something along the lines of "broadly in line with market cap". Then HP wilfully inflated the valuation of their own accord, probably at the urging of Leo.

        Meg then inherited a slow motion car crash that she either didn't jump on quick enough or fatally made the wrong decision on.

      2. Anonymous Coward
        Anonymous Coward

        KPMG are likely to have reviewed the numbers, agreed they broadly matched what was reported and reported any concerns to the board.

        As someone whose company has been audited by KPMG (meaning I see this from an employee perspective), they seem to have all their ducks in a row with each time an audit is conducted. I would "think" that they would be like that in all situations. Because of my experience, I am not sure I like the term "broadly matched" as KPMG seems to be fairy thorough. If they were truly involved, I am not sure that HPe has a valid case against Lynch.

        1. Terje

          I'm also quite sure the report would have been quite a bit more thorough then one page with "Seems legit" in the middle.

  6. Anonymous Coward
    Anonymous Coward

    Just like the BlockChain and AI valuations of today

    Autonomy was always a "fad" company that didn't do anything of value. But it had the "data mining" buzzword.

    It's a bit like all the VC cash thrown at random AI and Blockchain companies today. No-one really expects any of them to actually succeed.

    No sympathy for HP. I'm betting the decision makers didn't even install Autonomy's software before buying the company...

    1. Peter2 Silver badge

      Re: Just like the BlockChain and AI valuations of today

      The people bunging the money obviously expect them to succeed.

      It's just the people who have a reasonable knowledge of what's currently possible who doubt that any of them are going to achieve anything.

      1. Gordon 10 Silver badge

        Re: Just like the BlockChain and AI valuations of today

        Small correction - the people bunging money at them now are very keen NOT be the ones in debt when the merry-go-round stops.

        2 ways to win at the startup VC game. Ride the unicorn to the finish or glue a spike onto a horse, flog it and run.

    2. Anonymous Coward
      Anonymous Coward

      Re: Just like the BlockChain and AI valuations of today

      I remember reading the many comments on here along the lines of "Who?!" and "How much?!" when HP bought Autonomy. They could have done their due-diligence right here!

    3. Anonymous Coward
      Anonymous Coward

      Re: Just like the BlockChain and AI valuations of today

      I'm betting the decision makers didn't even install Autonomy's software before buying the company.

      Decision makers do not install software. It is likely that few ever have. They tend to be MBAs, liberal arts grads or (perhaps especially UK ones) read classics at a university that was pretentious when Queen Victoria was around. They may be able to read a balance sheet but it would be interesting to know how many can use a spreadsheet.

      Decision makers make their decisions using accountant input, gut feelings and perhaps word of mouth among their chums.

      1. Jack of Shadows Silver badge

        Re: Just like the BlockChain and AI valuations of today

        One of the big problems in Big Data is that rather than going with what the data are telling them: "Decision makers make their decisions using accountant input, gut feelings and perhaps word of mouth among their chums." Business, government, whatever. And when the results don't match their expectations, the (what they are calling them now) data scientists get the blame.

  7. MrNigel

    Creepy 'Maths qualified' Salespeople

    HP are 100% correct - they were selling snake oil. I met a number of times with Autonomy at their Head Office and rented London Sales Office next to the Ritz. It was like meeting a cult, the 20 something's in their dark suits looking like wanabee IBMer's, the chanting of 'Mike developed this clever algorithm thingy' and the sheer pomposity of starting every meeting with the announcement of their share price. Their standout tech example was a speech to text demo of a live TV news feed. Well it was 2006.......

    The court case is wrong - it should be the HP shareholders bringing a class action against the board members involved in signing the deal. Due diligence?

    1. /\/\j17

      Re: Creepy 'Maths qualified' Salespeople

      The guys on the IDOL side of Autonomy were always easy to play with though, you just had to say "So, IDOL...it's just a search engine then?" and they would go nuts with the official "Our search engine isn't a search engine" mantra. Remember doing an IDOL training course years ago alongside some BBC guys and we basically took it in turns to keep asking the question, watching the trainer slowly go mad :)

      1. Jellied Eel Silver badge

        Re: Creepy 'Maths qualified' Salespeople

        I was intrigued by the prospects of Autonomy when I lived & worked in Cambridge. Businesses generate petabytes of data, and sometimes asking how they organise that data just gets a finger pointed at a pile of server racks. Or in the general direction of a passing cloud. So it's always been a challenge to find useful data when you need it, and the promise of something that can manage unstructured data was appealing.

        So I think it's a bit unfair to say it was 'just' a search engine, because so is grep. Or Google's search appliances. But I also wondered a) did it work? and b) how much of a ball-ache it would be to restructure existing company systems, data and procedures so it could then be searched.

        1. hopkinse

          Re: Creepy 'Maths qualified' Salespeople

          The USP was supposedly that the software was more than just a search engine and would analyze/mine and give context to data and could do supposedly 'intelligent' search.

          The company I worked for in the late 90s/early 2000s sunk a shitload of cash into a datacentre built in their head office in Farnborough ( go figure??? First mistake - it was prime office estate not nice and cheap industrial unit) to sell Autonomy as an early SaaS offering.

          Like everything else that we were doing at the time that didn't involve box shifting or other throw it over the wall and forget business, our sales people didn't have a clue and it went nowhere. Pretty much broke the company and the net result was that we were bought out by a Dutch outfit called PinkRoccade.

  8. John Smith 19 Gold badge
    FAIL

    Smells like lots of self serving BS from all sides.

    All the s**t HP are talking about was being done by MS decades ago.

    So in 2016 all major auditors of all major accounting firms should know what tricks to look for.

    If I were an HP stockholder I'd be fuming that HP spent $11Bn of cash (not HP shares) and then literally burned $8Bn from the companies asset base.

    So class action lawsuits to HP's Board for being f**kwits and KPMG for apparently being totally incapable of spotting how suspicious the pattern of deals was (in Accounts it's the transaction pattern that says "S**t something's not right here. Somebodies trying to pull a fast one").

    1. Jack of Shadows Silver badge
      Holmes

      Re: Smells like lots of self serving BS from all sides.

      Shifting where things are recognized in the company's books dates back, at the very least, to The Gilded Age (ca. 1890's) by my recollection from my American Economic History course at university. It's the most well known trick there is and yet, curiously, accounting firms can't identify where it is a problem from their audits for the last 120+ years! Riiiiight.

  9. Aristotles slow and dimwitted horse Silver badge
    Thumb Up

    Ummm, just wanted to say...

    Well done El Reg (i.e. Gareth) for the excellent coverage so far, and I do hope it continues in the perfectly pitched "non TL;DR" vein. I'm really enjoying it so far and I'm sure many other regular readers are also.

    Top work chap(s).

  10. gbshore

    HP and The Meg didn’t believe in Leo’s vision of transforming HP into a Software focused business. Leo was a Software guy and his vision was that a hardware business, especially what HP manufactured, was a VERY low margin business and could not grow at scale. Core HP folks, some Board members and die hards thought it blasphemy to make such a huge pivot from HPs historical roots. So, they forced Leo out and came up with this BS scheme. Does ANYONE with half a brain think that a huge company like HP and their auditors missed something like this??? It’s absurd to think that .... if you do, I have a bridge to sell you... BTW, I was there for all this.... I can confirm all the internal chatter and the directives on why to say to our customers and how to spin it..... it caused a huge pause on the part of my clients as they didn’t know what all this meant to them... it was HORRENDOUS... and The Meg was HORRIBLE thru it all... she came to NY several times and it wasn’t uncommon to hear her yelling at people including the dressing down of several of my peers... WORST EXECUTIVE EVER!!!

  11. Keith Oborn

    Pot and Kettle

    I have no axe to grind in favour of Lynch et al: when I was at a competitor to Autonomy we observed that their products were designed to guarantee a regular flow of professional services revenue. ie, flaky, badly documented and needing constant tweaking.

    But HP should have done due diligence on more than just the financials. Anyone in the sector would have advised a very long barge pole.

    1. BebopWeBop Silver badge

      Re: Pot and Kettle

      Anyone in the sector would have advised a very long barge pole.

      I believe they did - as did HP employees. But the PHB always knows best (I would point to an appropriate Dilbert but there are so many of them.....)

    2. StewartWhite

      Re: Pot and Kettle

      HP and Autonomy are as bad as each other. Lynch is just another obnoxious wannabe Steve Jobs style bully and HP/HPE has been "led" by people who know nothing about technology for decades.

      What I don't get is why people don't read up on Enron and similar accounting scandals and see that Lynch et al just copied their ideas such as being obsessed with the stock market valuation, banning any analyst that dares to disagree with how clever they are and booking 10 years worth of revenue and "profits" as soon as a deal is signed even though the money ain't ever going to be handed over. Lynch then added his own asininity by vastly over-rewarding salespeople who exceeded their targets and sacking the worst performing 5% every quarter.thus encouraging them to lie and cheat even more than usual (I know - software salespeople that lie, who'd have thought?).

  12. FlossyThePig

    Tax angle

    Years ago I was told that HMRC don't usually get hoodwinked by dubious accounting so look at the tax liability not the glossy statements in annual reviews.

    I can't be bothered to look but what were Autonomy's tax liabilities over the years before the HP deal?

  13. amanfromMars 1 Silver badge

    No Discombobulation Here, please. Shed and Shred it over there. --------> where it belongs. Thanks

    you’re going to hear a lot of evidence about different resellers, whether there were signed agreements on the book... and so on. You’ll probably be struck during the trial by the granularity of much of the material relied on. But Dr Lynch wasn’t involved in any of those discussions.”.

    Please clearly explain and expand upon the full meaning of "the granularity of much of the material relied on."

    Is that a euphemism for half truths which always have an increasingly rapid and rabid decay built in to discourage or pitilessly punish such Asinine ACTivity?

    1. Voyna i Mor Silver badge

      Re: No Discombobulation Here, please.

      No.

      What it means is that well remunerated QCs will focus on tiny bits of detail at length in the hope that the great big things will get overlooked in the text walls. It's like Parliamentary corruption; ignore the really big stuff like newspaper owners being able to tell governments what to do, focus on duck houses that fill up lots of space in those newspapers.

      1. amanfromMars 1 Silver badge

        Re: No Discombobulation Here, please.

        What it means is that well remunerated QCs will focus on tiny bits of detail at length in the hope that the great big things will get overlooked in the text walls. It's like Parliamentary corruption; ignore the really big stuff like newspaper owners being able to tell governments what to do, focus on duck houses that fill up lots of space in those newspapers. .... Voyna i Mor

        Ah yes ...... that's what I was thinking too ....... a corrupted judiciary in the thrall of incestuous reward.

        But that only works whenever it is a top secret and generally unknown, Voyna i Mor.

        Why ever are they not thinking that their ploys are obvious? Are they compromised and being held to virtual ransom with some unpleasant skeletons in their cupboards?

        Or are they missing vital in house intelligence to defeat the subversion?

        And how can that be answered in anything other than a resounding YES nowadays.

  14. ecofeco Silver badge

    I said it from day one

    HP did not do a proper audit and are now trying to blame everyone but themselves.

    And yes, they did drag their feet and created a lot of uncertainty with Autonomy's existing and future customers.

    I also have no doubt Autonomy is also sketchy in some way. It's a tech company, innit? But this is mostly HP's fault.

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