Hewlett-Packard proudly announced its acquisition last year of the British software maker Autonomy for $11.1 billion. Now, H.P. is announcing that it is writing down $8.8 billion of its acquisition of Autonomy. This action is in effect admitting that the company was worth a shocking 79% less than H.P. had paid for it. Many believe that the deal was wildly overpriced from the outset and that at least some people at Hewlett-Packard recognized that. These people also say that H.P.’s chairman, Ray Lane, and the board that approved the deal should be held accountable.
The company attributed more than $5 billion of the write-off to 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.” The statement continued on to sat that, “These misrepresentations and lack of disclosure severely impacted H.P. management’s ability to fairly value Autonomy at the time of the deal.”
A statement released by a Hewlett-Packard spokesman said: “H.P.’s board of directors, like H.P. management and deal team, had no reason to believe that Autonomy’s audited financial statements were inaccurate and that its financial performance was materially overstated. It goes without saying that they are disappointed that much of the information they relied upon appears to have been manipulated or inaccurate.”
Autonomy’s founder, Michael Lynch, has launched an unusually aggressive public relations counterattack and has denied the charges. Mr. Lynch has also accused Hewlett-Packard of mismanaging the acquisition. Last May, H.P. asked Mr. Lynch to step aside after Autonomy’s results fell far short of expectations.
Stunned H.P. investors are still reeling from the management upheavals, corporate blunders and disappointing earnings that have been occurring for more than a year. Toni Sacconaghi, technology analyst at Sanford C. Bernstein, said that the acquisition of Autonomy “may be worse than Time Warner,” referring to AOL’s acquisition of Time Warner in 2000. That deal holds the dubious title of worst corporate deal ever, as it destroyed shareholder value and ended careers. The deal was considered so bad it seemed likely never to be repeated, rivaled or surpassed…until now.