20 November 2012 Last updated at 14:58 ET
HP chief executive Meg Whitman: “We uncovered a whole host of very concerning accounting improprieties”
Computer maker Hewlett Packard has asked US and UK authorities to investigate alleged misrepresentations of Autonomy’s finances before HP took over the UK software group last year.
HP said Autonomy appeared to have “inflated” the value of the company prior to the takeover as part of a “wilful effort to mislead”.
This led to a $ 5bn (£3.1bn) charge in its latest quarterly accounts.
The former management team of Autonomy “flatly rejected” the allegations.
Three former senior members of staff, including former chief executive Mike Lynch, said they were “shocked” to see the statement.
“HP’s due diligence review was intensive,” Autonomy’s former chief executive, chief financial officer and chief operating officer said, referring to the process of investigating a firm prior to purchase.
“It took 10 years to build Autonomy’s industry-leading technology and it is sad to see how it has been mismanaged since its acquisition by HP,” the statement from the former management team said.
During a conference call following the announcement, HP chief executive Meg Whitman said: “We did a whole host of due diligence but when you’re lied to, it’s hard to find.
“[Autonomy] was smaller and less profitable that we had thought,” she said, adding that HP’s investigations suggested that the UK firm had misstated its revenues and growth rate.
Taking into account recent falls in HP’s share value and lower-than-anticipated returns from the merger, the total one-off charge recorded in HP’s accounts for the three months to the end of October was $ 8.8bn, pushing the company to a $ 6.85bn net loss.
‘Questionable accounting’
HP’s allegations… are shocking if true – not least because for years Autonomy was regarded as that rarest and most precious of British companies, a global hi-tech success”
End Quote
HP said during the conference call that “a very senior person” from Autonomy had come forward “with specific details [of accounting misrepresentations]“. That person was still at the company, it said.
Ms Whitman said HP had discovered a number of irregularities, including hardware sales that had been reported as software revenues, which inflated both overall revenues and profit margins.
She said margins of between 40% and 45% had been reported, whereas HP now believed them to be between 20% and 28%.
As well as referring the matter to the regulatory authorities, the company would be “aggressively pursuing individuals responsible for this wrongdoing”, she added.
This would involve trying to recover money for HP shareholders.
HP shares fell 13% in early trading in New York following the announcement.
Deloitte, the accountancy firm which audited Autonomy’s accounts, said it could not comment on the allegations due to client confidentiality, but would cooperate with any investigations.
Criticism
HP completed the takeover of Autonomy for $ 12bn in October last year.
Autonomy was founded by Mike Lynch in 1996 and grew to become one of the largest software companies in the UK.
Mr Lynch is a non-executive director of the BBC, which said in a statement: “We expect to discuss these reports with Dr Lynch imminently.”
Autonomy gained a listing on the US Nasdaq exchange in May 2000, at the height of the technology boom, and was listed in London six months later.
The firm has often been cited as an example of how academic research can be turned into a profitable business, although it has attracted criticism from the City, particularly when, in October 2010, it warned there had been unexpected volatility in its customers’ “purchasing behaviour” and lowered its full-year forecasts.
HP’s decision to buy the company was part of the US firm’s long-term plan to move away from making computers into the more profitable software business.
BBC News – Business
Autonomy ‘misled HP on finances’
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Autonomy ‘misled HP on finances’
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Autonomy ‘misled HP on finances’
