Former CEO denies that former management inflated Autonomy value before HP takeover
Former Autonomy CEO Mike Lynch has strongly denied accusations of “serious accounting improprieties” made by HP against former members of the Autonomy management team following HP’s $10 billion purchase of the company.
HP, which bought the British software company for $10.3 billion (£6.7bn) in 2011, yesterday announced that it had sustained an $8.8billion (£5.3bn) non-cash impairment charge as a result of these indiscretions.
Lynch is believed to have made more than £500 million from HP’s acquisition but left his role in May after the new HP Autonomy unit failed to meet expectations. After his departure, a whistleblower came forward, alleging that there had been a series of questionable accounting and business practices at the company in the lead-up to HP’s purchase.
Mike Lynch denies accusations
HP launched an internal investigation and forensic review of Autonomy’s financial results prior to the takeover, and has since passed on its findings to UK and US authorities, with the promise of legal action against those responsible.
Specifically, HP alleges that Autonomy boosted its apparent software business by mis-classifying revenues from some of its sales. In low end sales, Autonomy would bundle in some hardware, which it sold at a loss, but the revenue from this was “mischaracterised” as software revenue for Autonomy’s “IDOL” product. HP also alleges that Autonony falsely claimed some of its licensing transactions with value added resellers were in fact revenue from end users
However Lynch told The Times that he had been “ambushed” by HP and that it had not contacted him before publishing the allegations, suggesting that it was an attempt to distract from the company’s disastrous quarterly results.
“It is completely wrong and I reject it,” he told the newspaper. “They ran the business for a year with these accounts and now they have written down the value of Autonomy by $5 billion as a result? Well that’s a hell of an elephant in the room for them to miss.”
“HP is announcing its worst results in 70 years. This is a distraction. I would be very surprised if there was even an investigation,” he added.
HP did its Autonomy homework
Lynch has pointed out that HP’s due diligence was intensive and overseen on behalf of HP by KPMG, Barclays and Perella Weinberg, while HP’s senior management has been closely involved with Autonomy for the last year.
The sum paid by HP was the largest ever paid for a UK technology company, but analysts at the time said that it was overpriced. Around 87.3 percent of Autonomy shareholders accepted HP’s offer of £25.50 per share, over 79 percent more than the market price for those shares.
HP yesterday reiterated its commitment to Autonomy, but Lynch says that it has “damaged” the company.
What do you know about Hewlett-Packard? Find out with our quiz!