Hewlett-Packard's Ill-Fated Deal for Autonomy Is Back in Court
March 25 2019 - 01:01PM
Dow Jones News
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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