By Stu Woo 

LONDON -- Hewlett-Packard bought U.K. software developer Autonomy for $11.1 billion in 2011. Just a year later, the famed U.S. tech company said it had been duped into overpaying as it took an $8.8 billion write-down.

On Monday, seven years after the allegation, the two sides met in court to continue the trans-Atlantic feud pitting the Silicon Valley icon against one of Britain's most famous tech entrepreneurs.

Hewlett-Packard is no more, but its successor companies are suing Autonomy's founder and chief executive, Michael Lynch, and one of his former lieutenants for $5 billion in damages.

In opening statements in High Court, the plaintiffs' lawyers alleged Mr. Lynch and Autonomy's former finance chief lied about the company's financial performance to make it more attractive to potential suitors, such as Hewlett-Packard.

The British civil suit is one of several civil and criminal cases centered on the deal.

The U.S. Justice Department is pursuing a criminal case against Mr. Lynch and another former Autonomy executive. In an updated indictment filed Thursday, U.S. prosecutors alleged the two committed fraud and tried to cover it up. The pair could face up to 20 years in prison for 15 counts of conspiracy and wire fraud.

Separately, a U.S. federal jury last April convicted the former finance chief of falsifying financial statements and exaggerating the company's value. His lawyer said at the time he intended to appeal.

A lawyer for Mr. Lynch said in a statement Monday that U.S. investigators had a "shoot first, ask questions later" approach and that his client wasn't guilty of the "preposterous" allegations.

A spokeswoman for Mr. Lynch said there was no fraud. "The real story is that HP, after a history of failed acquisitions, botched the purchase of Autonomy and destroyed the company, seeking to blame others," she said.

Mr. Lynch now runs Invoke, a London venture-capital firm, and sits on the board of cybersecurity startup Darktrace. On Monday, he sat attentively in court during opening statements from lawyers in the case.

The trial is scheduled to run through at least December and is expected to feature testimony from former Hewlett-Packard Chief Executive Meg Whitman and her predecessor, Leo Apotheker, who was running the company when it bought Autonomy in 2011.

At the time, Hewlett-Packard was transitioning from being primarily a maker of personal computers and other hardware, a low-margin business, to a company focused on the higher-margin business of selling software and services.

Autonomy appeared to do that well, selling software that enabled companies to search for unstructured data inside huge databases. At the time of the deal, Autonomy was Britain's biggest software company and the second-largest in Europe after Germany's SAP AG. The media described Mr. Lynch as the U.K.'s answer to Bill Gates.

Hewlett-Packard paid a hefty premium to Autonomy's market value, which was $6.3 billion ahead of the deal announced in August 2011. Just a month later, Hewlett-Packard replaced Mr. Apotheker with Ms. Whitman, the former eBay CEO and onetime Republican nominee for California governor.

Ms. Whitman would spend the next several years splitting Hewlett-Packard into new companies: HP Inc., which made printers and personal computers, and Hewlett Packard Enterprise Inc., which focuses on servers and data storage.

In court on Monday, Laurence Rabinowitz, the lawyer representing Hewlett Packard's successor companies, said Mr. Lynch and another former Autonomy executive artificially inflated their company's sales and margins. He said Autonomy presented itself as a high-margin software developer, but met sales targets by simply buying and reselling third-party hardware.

"Autonomy gave a false and misleading impression of what its sources of revenue were," Mr. Rabinowitz said.

The defense plans to argue that the case stems from different accounting practices, which blue-chip accounting firms vouched for.

"This is a case that distills down to a dispute over differences between U.K. and U.S. accounting systems," said a spokeswoman for Mr. Lynch.

Write to Stu Woo at Stu.Woo@wsj.com

 

(END) Dow Jones Newswires

March 25, 2019 13:46 ET (17:46 GMT)

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