In a financial shakeup reminiscent of the Ramalinga Raju-Satyam Computers fiasco, computer maker Hewlett-Packard late on Tuesday revealed that it has taken an $8.8bn charge after “serious accounting improprieties” were discovered at Autonomy, the British tech firm it acquired in 2011 for more than $10 billion.
The Silicon Valley giant called on the US and British authorities to investigate what it called “serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy” that occurred prior to HP’s acquisition.
The deal was brokered under HP’s previous chief executive Leo Apotheker but finalised by current boss Meg Whitman, former eBay chief and one-time California gubernatorial candidate.
The losses wiped out HP’s profits for the latest quarter. The company reported a net loss of $6.9 billion, compared with a $200m profit in the period a year earlier. Its shares plunged 13% by mid-morning. HP said it would “seek redress against various parties” in civil courts.
Autonomy founder Mike Lynch, close to Apotheker, had made $800 million in the deal. Investors later accused HP company of over-paying, and Apotheker was ousted after just 10 months in the job. Lynch left in May as HP announced 27,000 job cuts world-wide as part of a $3bn-$3.5bn cost-cutting.
The Autonomy investigation is believed to have been started by a whistleblower in Autonomy’s leadership who came forward after Lynch’s departure.
HP called in audit firm PricewaterhouseCoopers to do a forensic review of Autonomy’s historical financial results.
The investigation determined that Autonomy was “substantially overvalued at the time of its acquisition.”
“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,” HP said.
The company said it had alerted the Securities and Exchange Commission’s enforcement division in the US and the UK’s Serious Fraud Office.
A spokesman for Lynch and Autonomy’s former management team said “HP has made a series of allegations against some unspecified former members of Autonomy Corporation PLC’s senior management team. The former management team of Autonomy was shocked to see this statement today, and flatly rejects these allegations, which are false.”
Autonomy was represented in the HP acquisition deal by Frank Quattrone, an investment banker who was the target of widespread criticism — and criminal prosecution — for acts in the first dot-com boom.
HP’s lead advisor was Perella Weinberg, a boutique investment bank with little experience of big tech deals.
Multiple sources added that big-name banks on Autonomy’s side were brought in days before the final agreement. They said the banks were brought on as favours for their long relationships with the companies, in a little-scrutinised Wall Street practice of crediting investment banks that had little to do with the deal.
Shares of MphasiS tanked more than 6% in morning trade on Wednesday after the HP-Autonomy incident came to light. The scrip hit an intra-day low of R380.5 before clawing back most of the losses to close at R390.9, an overall decline of 1% over Tuesday’s close. HP holds about 62% stake in the Bangalore-based software and back office service provider.