Hewlett-Packard Tells Court It Lost $4 Billion From Autonomy Acquisition

Hewlett-Packard claims it lost billions of dollars due its acquisition of UK software firm Autonomy, lawyers for the tech giant told a London court on Monday.

Reuters reported that the lawyers said that HP lost $4bn (£3.2bn) due to an alleged fraud masterminded by Autonomy’s co-founder and former CEO, Dr Mike Lynch, to inflate the company’s value.

Now HPE (the resulting software operation after HP’s split in 2015) is seeking to recoup those losses in its lawsuit against Lynch, and Autonomy’s former chief financial officer, Sushovan Hussain, who in 2019 was sentenced to five years in prison in the US.

Damage claim

HP’s lawyers argued on Monday that its losses resulting from the fraud entitled it to more than $4bn (£3.2bn).

But Lynch denies any wrongdoing and argues HP suffered no real loss.

Lynch has previously stated that the dispute stems from a misunderstanding of UK and US accounting rules.

Lynch’s lawyer David Wolfson was quoted by Reuters as saying in court filings that the price HP would have paid “would not have been materially different”, in part because of Autonomy’s unique technology and HP’s strategic rationale for the acquisition.

Lynch intends to seek permission to appeal against the court 2022 ruling, which has been delayed until after the determination of damages, his lawyers previously said.

Lawyers representing Hussain said he agreed with Lynch’s case.

Court case

The legal case centres around an $11 billion acquisition made 14 years ago.

Back in 2011, HP’s acquisition of Autonomy was the largest-ever buyout of a European technology firm at the time.

The $11bn (£8.7 billion) acquisition was intended to spearhead HP’s move into software, but it quickly became an accounting nightmare, and a year later HP took a $8.8 billion (£6.9bn) “intangible asset impairment” charge over the acquisition.

HP alleged at the time that the majority of that charge, more than $5 billion, had resulted from a number of practices used by former members of Autonomy’s management team to inflate the value of the company and mislead investors and potential buyers at the time of the acquisition.

The remainder of that write-off charge was related to other factors such as the trading value of HP stock and marketplace performance.

Legal battles soon followed, and in April 2015 HP sued Lynch, alongside former Autonomy CFO Sushovan Hussain at the High Court in London, seeking $5bn in damages.

Lynch countersued HP for $160m in 2015, saying at the time the company had ruined his reputation and that it was “incompetent in its operation of Autonomy”, leading to the acquisition’s failure.

In the UK the Serious Fraud Office (SFO) in 2015 dropped its investigation into the sale of Autonomy to HP.

Eventually in September 2016 HPE sold its software business, including the Autonomy division, to British IT firm Micro Focus for $8.8 billion.

HP victory?

But HP’s court case against Lynch in UK courts continued and in January 2020 a British judge ruled that HP “substantially succeeded” in its lawsuit.

However the judge ruled any damages would be “considerably less” than the $5 billion sought by HP.

After that verdict, then Home Secretary Priti Patel approved the extradition to US of Mike Lynch to face 17 counts of US charges, including wire fraud, conspiracy and securities fraud, which carries a maximum term of 20 years in prison.

Lynch was finally extradited to the US in May 2023, and confined to an address in San Francisco under house arrest. Lynch was also ordered to pay a $100 million (£79m) bond and is watched by 24-hour armed guards he must pay for himself.

In October 2023 Lynch launched a legal challenge to dismiss the US allegations against him.

Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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