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HP accuses Autonomy of lying over finances

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Hewlett-Packard has said that an internal investigation has uncovered "accounting improprieties, misrepresentations and disclosure failures" in Autonomy's financial statements before it acquired the firm last year.

In a statement today (November 20), the computer giant said that it has asked the US Securities and Exchange Commission's Enforcement Division and the UK's Serious Fraud Office to launch a civil and criminal investigation into the alleged malpractice.

Hewlett Packard (HP)
Autonomy logo


HP has announced a charge of $5 billion (£3.1bn) in the third quarter of 2012, which it said was "linked to serious accounting improprieties, misrepresentation and disclosure failures" discovered in a forensic review of Autonomy's accounts after the acquisition.

The total one-off charge recorded in the firm's accounts for the three months to the end of October was $8.8bn, pushing the company to a $6.85bn net loss.

HP said that it was "extremely disappointed" at the failures, but remained committed to Autonomy's technology.

"HP is extremely disappointed to find that some former members of Autonomy's management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy's acquisition by HP," the firm said.

"These efforts appear to have been a wilful effort to mislead investors and potential buyers, and severely impacted HP management's ability to fairly value Autonomy at the time of the deal. We remain 100% committed to Autonomy and its industry-leading technology."

In October 2011, Hewlett Packard completed its acquisition of British software giant Autonomy in a $12bn (£7.7bn) deal.

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HP agreed to pay £25.50 in cash for each share in the Cambridge-based company, representing a 79% premium that proved hugely controversial with HP shareholders.

HP launched the internal investigation after a "senior member" of Autonomy's leadership team came forward, following the departure of company founder Mike Lynch, to flag up the alleged accounting malpractice.

After PricewaterhouseCoopers conducted an investigation into Autonomy's historical financial results, 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".

HP said that the accounting improprieties and misrepresentations include the mischaracterisation of revenue from negative margin and low-end sales, which may have "compromised" 10-15% of Autonomy's earnings.

The firm allegedly may also have used licensing transactions with value-added resellers to either "accelerate" revenue recognition, or even create revenue where "no end-user customer existed at the time of sale".

"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," said HP.

"These misrepresentations and lack of disclosure severely impacted HP management's ability to fairly value Autonomy at the time of the deal."

HP has referred the matter to US and UK regulators for deeper investigation, and the firm is also "aggressively" preparing civil actions against "various parties" to recoup what it can for shareholders.

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