Serious Fraud

Hewlett-Packard Takes $8.8 Billion Charge, Says It Was Duped in Autonomy Deal

Says certain Autonomy employees inflated financial metrics to mislead potential acquirers.
whitman Hewlett Packard Takes $8.8 Billion Charge, Says It Was Duped in Autonomy Deal

Whitman. (Photo: Max Morse)

Hewlett-Packard took an $8.8 billion charge against fourth-quarter earnings after uncovering “serious accounting improprieties, disclosure failures and outright misrepresentations” at Autonomy, the British software maker H-P acquired last year, the company said today.

That’s a large loss by any measure, and looks all the uglier given that former CEO Leo Apotheker paid $11.1 billion for the search engine developer just last August in an attempt to compete in the enterprise software market. Drill down on the corporate speak—and set aside H-P’s claim that it remains “100 percent committed” to Autonomy’s “industry-leading technology”—and it sounds like the company simply bought a bill of goods:

As a result of that investigation, HP now believes that Autonomy was substantially overvalued at the time of its acquisition due to the misstatement of Autonomy’s financial performance, including its revenue, core growth rate and gross margins, and the misrepresentation of its business mix.

This appears to have been a willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers. These misrepresentations and lack of disclosure severely impacted HP management’s ability to fairly value Autonomy at the time of the deal.

News of the write-down overshadowed generally disappointing results, in which revenue, operating margins and earnings per share declined. “Fiscal 2012 was the first year in a multiyear journey to turn H-P around,” CEO Meg Whitman said in a statement.

Meanwhile, Ms. Whitman said during a conference call this morning that the company has shared its findings with the Securities and Exchange Commission, as well as the U.K.’s Serious Fraud Office. “H-P intends to seek regress against various parties in the appropriate civil courts to recoup what we can for our shareholders,” she said.

Note: A previous version of this post reported that H-P acquired Autonomy for $10 billion. Currency fluctuations and other factors raised the price to $11.1B when the deal closed in October 2011.

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