HP proceeded with Autonomy buy despite financial allegations


HP had a chance to back out of the Autonomy deal at the 11th hour after being tipped off about possible accounting improprieties at the UK software firm.

Auditors told HP that an Autonomy executive had made claims about improper financial dealings at the firm before the purchase, according to the WSJ.

However, auditors reassured HP that the allegations were baseless and this information was subsequently not passed onto the the board or chief executive.

Despite axing Leo Apotheker, the CEO of HP who had championed the purchase, before the deal closed, the acquisition went ahead.

Six months on after the deal, it was clear the merger was not going to plan. Mike Lynch, the former CEO of Autonomy left the firm in the wake of the deal after revenue targets were missed.

After one year, HP publicly announced that it was going to write-down the purchase to the tune of $8.8 billion. Some $5 billion of this was apportioned to improper accounting, the firm said.

HP gave some examples of the financial irregularities it claims took place at Autonomy. Amongst the accusations leveled at Autonomy was a claim of "mischaracterisation of revenue from low-end hardware sales" and the "improper inclusion" of this revenue in organic growth calculations.

Autonomy was also accused of using its channel of value added resellers (VARs) to "inappropriately accelerate revenue recognition" and create evidence of sales where "no end user customer existed".

Lynch vehemently denied any accounting irregularities, going so far as to create his own website dismissing the allegations.

Despite the position HP finds itself in, CEO Meg Whitman, confirmed the UK software firm would continue to be supported.

"We remain 100 per cent committed to Autonomy's industry leading technologies and its employees. We are really excited about the innovations that are in the pipeline," Whitman said at HP Discover in December.

In IT Pro's analysis of the HP/Autonomy acquisition, experts concluded that it was astonishing that such improprieties were not picked up during the due diligence part of the acquisition.

Khidr Suleman is the Technical Editor at IT Pro, a role he has fulfilled since March 2012. He is responsible for the reviews section on the site  - so get in touch if you have a product you think might be of interest to the business world. He also covers the hardware and operating systems beats. Prior to joining IT Pro, Khidr worked as a reporter at Incisive Media. He studied law at the University of Reading and completed a Postgraduate Diploma in Magazine Journalism and Online Writing at PMA Training.