Autonomy accused by HP of £3bn over-valuation

  • 20 November 2012
  • From the section Business

HP's allegations of "accounting improprieties, misrepresentations and disclosure failures" at Autonomy 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.

The US computer giant says that this alleged wrongdoing led it to overpay by more than £3bn (or more than $5bn) when it bought Autonomy for £6.7bn last year.

In a press conference, HP's chief executive Meg Whitman said the company uncovered the alleged malpractices "after a senior member of Autonomy's leadership team came forward following the departure of Autonomy founder Mike Lynch".

Mr Lynch, who is a non-executive director of the BBC, left Autonomy in May. I have texted and emailed him for comment, but have so far not received any word from him.

Mr Lynch made more than £500m from the sale of Autonomy.

HP has "referred this matter to the US Securities and Exchange Commission's Enforcement Division and the UK's Serious Fraud Office for civil and criminal investigation".

The US company says that its own investigation continues. But it gives examples of what it calls "accounting improprieties and misrepresentations".

These include disguising lossmaking "low-end hardware sales" as sales of its innovative Intelligent Data Operating Layer (IDOL) product - to make it appear that this supposedly exciting new computer product was performing better than was the case.

HP says that "this negative-margin, low-end hardware is estimated to have comprised 10-15% of Autonomy's revenue".

Another accusation against Autonomy is that it created "revenue where no end-user customer existed at the time of sale" or accelerated the recognition of revenues inappropriately.

The central charge from HP against Autonomy is that there was "a wilful 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 announced that in total it is cutting by £5.5bn or $8.8bn its valuation of Autonomy. Its profits for the fourth quarter of the current year have been reduced by this $8.8bn impairment charge, such that it made a net loss in the period of $6.9bn.

However Ms Whitman said that HP remains "100% committed to Autonomy" - which she described as "a great British company" with world-leading technologies.

Update 16:10 GMT

Here is a statement from Autonomy's former management team:

"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.

"HP's due diligence review was intensive, overseen on behalf of HP by KPMG, Barclays and Perella Weinberg. HP's senior management has also been closely involved with running Autonomy for the past year.

"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."