HP Accuses Autonomy of Financial Falsehoods, Takes $8.8 Billion Charge

Hewlett-Packard accused Autonomy of a broad range of wrongdoing resulting in an $8.8 billion writedown.

HP alleged a massive accounting scandal at Autonomy Inc and took an $8.8 billion writedown. Photo: HP/Flickr

Hewlett-Packard Co announced on Tuesday it discovered “serious accounting improprieties” and “a willful effort by Autonomy to mislead shareholders,” after a company’s insider revealed some details following the ouster of former Autonomy Chief Executive Mike Lynch.

“Some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition,” the company said in a statement.

The news affected the company’s shares plunging 12 percent to a 10-year low of $11.71. Hewlett-Packard, which has previously considered to be one of the bedrock companies of Silicon Valley, now has a market value of roughly $20 billion, down from $155 billion in April of 2000.

Meg Whitman became HP CEO about a year ago when her predecessor, Leo Apotheker, was fired after less than a year on the job.

Apotheker’s one big strategic move during his brief tenure was the $11 billion acquisition of Autonomy. He believe that the purchase would hasten HP’s transformation into a software and services company but it was criticized by many analysts as over-priced.

“Most of the board was here and voted for this deal, and we feel terribly about that,” Whitman said on a call with analysts.

Tuesday’s announcement comes three months after HP took a write-down of almost $11 billion on its EDS services division, Reuters reports.

The firm has for years relied on deal-making, acquiring businesses such as Compaq and Palm, but has largely failed to articulate a clear strategy or establish a strong position in growth businesses like computer services or mobile computing.

“To put it bluntly … this story has been an unmitigated train wreck, and it seems every time management speaks to the Street, there is new negative incremental information forthcoming,” said ISI Group analyst Brian Marshall.

In a recent interview Lynch “flatly rejected” HP’s allegations and said he was “shocked” but confident he would be absolved of any misdeeds.

The former HP’s executive assured that he had not been notified by the company about the allegation before it was made public, nor had he been contacted by any authorities.

Whitman predicted that the investigation of Autonomy’s finances would take many years as it wends its way through the courts in both countries.

She defended the board’s handling of the acquisition and blamed HP’s auditors for failing to detect the problems.

“The board relied on audited financials, audited by Deloitte. Not Brand X accounting firm, but Deloitte,” she said, adding that KPMG was hired to audit Deloitte.

“Neither of them saw what we now see after someone came forward to point us in the right direction,” Whitman said.

“This is going to test investors’ patience, and the stock is going to continue to struggle,” Brian White, an analyst at Topeka Capital Markets Inc., said.

“This just adds fuel to the fire in that investors have been very concerned about the company’s fundamental performance, and now you’ve got improprieties in a company that you acquired that everyone was upset you acquired anyway,” he added.

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