“We paid too much. No question about it,” CEO Meg Whitman said about HP’s $11 billion acquisition for Autonomy that has turned into a giant mess, complete with an investigation by the Department of Justice. But the fault for the mess doesn’t lie with the HP board who approved the deal (and that includes Whitman herself) she says, but with auditors Deloitte.
To recap: In November, HP announced that it was writing off $8.8 billion of that $11 billion purchase and that about $5 billion of the write-off was due to alleged “improper accounting” of Autonomy’s books. Autonomy’s founder Mike Lynch has denied all the allegations.
Yesterday, The Wall Street Journal posted a video interview of Meg Whitman with reporter Alan Murray asking tough questions about Autonomy.
Murray pointed out that the writedown amounted to about 85% of the value of the company. Here’s a partial transcript of the conversation.
Murray: What happened with Autonomy. You weren’t CEO but you were on the board, approved the purchase. Did you just miss an 80-85% hole in the company? How does something like that happen?
Whitman: I think big data, analytics, meaning-based compute is part of one of the big shifts in our industry. … so the notion of this acquisition is actually correct and we relied on audited financial statements. The auditor is not exactly brand X auditor. Did you ever dream that the financials would not represent the true financial condition of the company?
Murray: You had people doing do diligence at the time for the board?
Whitman: Absolutely. But we didn’t go in and question Deloitte and say, ‘Are you appropriately accounting for the revenues and the operating profits’?
Murray: What does it say more broadly about corporate governance? If the board can’t find an 85% hole –
Whitman: Alan, that’s not fair at all in my view. The company turned out to be smaller, slower growth and somewhat less profitable than we anticipated, but we’re still investing in Autonomy. We just announced yesterday that we’re hiring 50 more engineers in the meaning-based compute side of this.
We paid too much. No question about it. But its very hard for any kind of corporate governance to find mistakes and outright misrepresentations that a full-time auditor of the stature of Deloitte didn’t catch.
Whitman has to be careful when discussing the board’s liability. The company is currently facing at least 10 shareholder lawsuits over the situation.
Deloitte has “categorically denied” any knowledge about alleged accounting fraud at Autonomy.
As far as HP’s investment in the company, the same memo that said HP would hire 50 engineers, also said it would be laying off people, too, specifically those who worked on Autonomy’s augmented reality product Aurasma.
Here’s the full interview.