HP has sustained an $8.8billion (£5.3bn) non-cash impairment charge for “accounting improprieties” relating to its $10.3 billion (£6.7bn) takeover of Autonomy last year.
The company said that the majority of this charge, more than $5 billion, resulted from a number of practices employed 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 the charge is related to other factors such as the recent trading value of HP stock and marketplace performance.
At the time of the takeover, the purchase price was widely criticised as being too high by analysts. 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’s findings were the result of an internal investigation and forensic review of Autonomy’s historical financial results prior to the takeover.
“The company intends to aggressively pursue this matter in the months to come,” said HP, adding that it was ready to take legal action against certain individuals to recoup what it could for shareholders. It has also referred its findings to the US Securities and Exchange Commission’s (SEC) Enforcement Division and the UK Serious Fraud Office for civil criminal investigations.
“We remain 100 percent committed to Autonomy and its industry-leading technology,” said HP.
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We recieved the following comment from Victor Basta, managing director of Magister Advisors:
“HP’s pursuit of a “buy software to get out of hardware” strategy has failed. Autonomy was always an off piste deal. Many large businesses will do a series of bread and butter mid-sized deals, but in HP’s case they went for broke.
HP are clearly on a mission to change but it was essential they worked first to fix the culture and revamp the business before making a game-changing acquisition. HP’s leadership made a huge mistake by attempting to ‘fix by buying’.
“Autonomy’s business is based on a one time software licence model as opposed to a subscription model. At the time of acquisition it was also growing very fast. Put that speed of growth and the one off sales model together and you have a business that is incredibly difficult to value and very challenging to manage and integrate. Candidly, it was like putting an 18 year old who just passed their driving instruction behind the wheel of a Ferrari.
“The markets, quite reasonably, have been asking the question: “what happened to the $13 billion?” What’s clear is that the business hasn’t been able to cohere around a strategy for integrating Autonomy and transforming the HP business.”
“It needn’t have been this way. IBM achieved it, Dell has been hard at work doing the same through a range of acquisitions, including Quest and Perot Systems. It is difficult, not impossible.
HP would have been far better off targeting, like IBM and Dell, a range of smaller acquisitions, with more predictable revenue, and which they could gradually build around. It takes a decade, not a year, to achieve this kind of change.
HP’s culture has however made it impossible. Transitioning from a hardware business to a software business requires a fundamental shift in corporate culture – and that is something that you simply can’t buy.”