HP says Autonomy lied, Autonomy says HP cheated
Hewlett-Packard has finally put a figure on the amount it says Autonomy inflated its value before its acquisition – slashing the British software firm’s reported profits by 81 percent for 2010, the year before HP bought it for $11.7 billion (£7.2bn) in in the largest deal the British software industry has ever seen.
A year later HP wrote down the value of the firm by $8.8 billion, and accused Autonomy of false accounting to inflate the company’s value. Now HP has re-filed the 2010 accounts for Autonomy, reducing the profits for the year from £106 million to £19 million.
Fraud or tax dodge?
Autonomy’s former management, including then CEO Mike Lynch, have responded saying HP is just dodging taxes. They claimed the company is simply shifting revenues from one year to the next, to reduce the amount of UK tax it is liable to pay
“A close reading of these accounts shows that the changes in Autonomy Systems sales were mainly a matter of deferred timing under the new HP accounting policies, deferring revenue out of 2010 and into future years,” said Mike Lynch’s on his blog AutonomyAccounts.org. “HP’s intimation that this revenue has in some way disappeared is false.”
HP has asked the UK tax authorities, HMRC, for a £37.4 million tax refund as a result of the figures, said Lynch, getting in a counter-accusation that HP is dodging its responsibilities: “As an independent company, Autonomy was a good corporate citizen. It always paid its proper share of UK tax and the company did not resort to any exotic accounting treatments in order to avoid paying tax.”
HP’s restatement of the accounts cuts the 2010 revenue at Autonomy in half, to £81 million, with the profit dropping by four fifths – to £19 million. The accounts say that “extensive investigations” into Autonomy’s past accounting practices “have revealed extensive errors (including misstatements) in the previously issued financial statements.”
Despite a continuous barrage of accusations over the last year, HP has yet to bring an actual lawsuit, and said two weeks ago that in needs six weeks to decide whether to take legal action.
Meanwhile, HP is in the difficult position of selling Autonomy’s technology: A new version of the company’s IDOL software was launched last week, with tighter integration to HP’s Big Data platform, HAVEn
Lynch and his fellow former Autonomy leaders have consistently denied any wrong-doing. saying that whatever value HP put on the company was the result of extensive due diligence, and challenged the company to back up its allegations: “[HP] has consistently failed to substantiate its allegation that Autonomy in any way inflated its sales and profits,” said Lynch. “It has never provided the former Autonomy management team with any documents supporting its claims. The reason for that is simple: there was no misrepresentation of the numbers and Hewlett-Packard’s claims simply do not add up.”
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