HP takes loss of $8.8 billion, claims fraud in Autonomy purchase
BY PETER SVENSSON Associated Press
Wednesday, November 21, 2012
11/21/12 at 3:35 AM
NEW YORK - Hewlett-Packard Co. said on Tuesday that it's the victim of a $5-billion-plus fraud, claiming a British company it bought last year lied about its finances.
HP CEO Meg Whitman said executives at Autonomy Corporation PLC "willfully" boosted the company's figures through various accounting tricks, which convinced HP to pay $9.7 billion for the company in October 2011.
Autonomy's former CEO said HP's allegations are false.
HP is now taking an $8.8 billion charge to align the accounting value of Autonomy with its real value. More than $5 billion of that charge is due to the false accounting, HP said.
The revelation is another blow for HP, which is struggling to reinvent itself as PC and printer sales shrink.
Among other things, Autonomy makes search engines that help companies find vital information stored across computer networks. Acquiring it was part of an attempt by HP to strengthen its portfolio of high-value products and services for corporations and government agencies. The deal was approved by Whitman's predecessor, Leo Apotheker, but closed three weeks into Whitman's tenure as chief executive. Whitman was a member of HP's board of directors when Apotheker initiated the Autonomy purchase.
Among the tricks used at Autonomy, Whitman said: The company had been booking the sale of computers as software revenue claiming the cost of making the machines as a marketing expense. Revenue from long-term contracts was booked up front, instead of over time.
As a result, Autonomy appeared to be more profitable than it was and seemed to be growing its core software business faster than was actually the case. The moves were apparently designed to groom the company for an acquisition, Whitman said.
Once HP bought the company, Autonomy's reported results quickly declined. Autonomy CEO Mike Lynch continued to run the company as part of HP, but Whitman forced him out on May 23.
With Lynch gone, a senior Autonomy executive volunteered information about the accounting shenanigans, prompting an internal investigation, she said.
The case has been referred to the U.S. Securities and Exchange Commission and the UK's Serious Fraud Office, she said. The company will also try to recoup some of the cash it paid for Autonomy through lawsuits.
In a statement to the Financial Times, Lynch said "The former management team of Autonomy was shocked to see this statement today, and flatly rejects these allegations, which are false."
Original Print Headline: HP takes loss of $8.8 billion on Autonomy buy