Hewlett-Packard Reveals US$8.8bn Hit, Claiming Autonomy ‘Improprieties’

US group Hewlett-Packard (HP) announced that it has taken an US$5bn write-down on what it alleges were “serious accounting improprieties” discovered at UK tech firm Autonomy, which it purchased in October 2011 in a US$11.1bn deal.

“There appears to have been a willful sustained effort” to inflate Autonomy’s revenue and profitability, said HP’s chief executive officer (CEO), Meg Whitman. “This was designed to be hidden.”

HP has alerted the US Securities and Exchange Commission (SEC) and the UK’s Serious Fraud Office (SFO) over its allegations, which wiped out group profits for the quarter and resulted to a net loss of US$6.9bn being reported on 20 November against  a £200m profit last year.

A further US$3.8bn was added to the non-cash impairment charge of US$8.8bn taken in total in relation to Autonomy in Q4 of HP’s 2012 fiscal year. The extra money, not linked to the “serious accounting improprieties”, is for loss of expected revenues.

However, in an interview with
The Wall Street Journal
, Autonomy founder, Mike Lynch, said he was not aware that HP was preparing the allegations, which he described as “utterly wrong”.

“I can’t understand how you can write down US$9bn of value and say somehow this was all caused by something you didn’t notice when you did due diligence with 300 people,” Lynch added. “It would be kind of a big elephant to have missed.” Lynch initially stayed on to run Autonomy following the deal, but subsequently left in April this year.

The Autonomy acquisition was initially brokered by HP’s previous CEO, Léo Apotheker, and finalised by his successor, Whitman, who joined the HP board from eBay in March 2011 and took over after Apotheker was ousted.

Apotheker himself said that he was stunned by the allegations. In a statement released on 20 November, he added that HP had conducted extensive due diligence before the purchase and was “meticulous and thorough.”

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