A new report by the Financial Times brings into question exactly what HP knew about Autonomy’s books and when.
To recap: less than a year after buying British software maker Autonomy for $US11 billion, HP wrote off $US8.8 billion and alleged that Autonomy had improperly inflated its revenues and margins, to the tune of $US5 billion. HP called it fraud, named a whole bunch of ways it believed Autonomy had done this, and asked for investigations by the authorities.
HP said it discovered problems when a whistleblower came forward in May 2012. It publicly disclosed this information when it announced the write-off in November 2012.
The Financial Times report goes into depth over several Autonomy deals said to be at the heart of the scandal, and shows that HP might have known something about some of them months before the whistleblower came forward.
Autonomy founder Mike Lynch has vehemently denied all charges and says that HP’s own mismanagement after the sale was the real problem.
Specifically, HP said one of the problems it discovered was that Autonomy was selling hardware at a loss and accounting for that as a sales-and-marketing expense. HP indicated that this made Autonomy look like it had higher profit margins than it did.
FT uncovered emails from HP executives months before the whistleblower came forward that allegedly show HP knew that Autonomy was selling hardware.
Here is HP’s official statement regarding the emails, in which it denies knowing anything before the whistleblower:
While HP eventually learned that a portion of Autonomy’s revenues were related to hardware sales, we knew nothing of the accounting improprieties, misrepresentations and disclosure failures related to such sales until after a senior Autonomy executive came forward and HP conducted an extensive investigation.
Mike Lynch has written a long response on his blog. Here’s a bite of that:
The FT revelations now show that HP and its senior management were well aware of Autonomy’s hardware sales and its legitimate practice of sometimes selling hardware as a loss leader, and that all of these sales had been fully disclosed to Deloitte and appropriately reviewed and treated.
The Autonomy acquisition has been a major ordeal for HP. So far, the CEO who orchestrated it, Leo Apotheker, left the company, as did another top HP exec. Plus two board members resigned, and HP’s previous chairman of the board, Ray Lane, stepped down from that role but retained his board seat.
Various regulatory agencies in the U.S. and U.K. are investigating.
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