HP ‘aware of different accounting methods’, claims Autonomy’s Lynch
Former CEO of UK firm says report warned HP execs of issues lawsuit claims were kept secret
HP was made aware of differences in accounting practices between the US and the UK, and their possible impact on future growth, as the company made plans to acquire British software firm Autonomy, according to Autonomy's former CEO, Mike Lynch.
HP bought Autonomy for $11.7bn in October 2011, but is suing Lynch and former Autonomy finance director Sushovan Hussain for $5.1bn in the UK, alleging that the pair plotted to inflate the value of the company through illicit accounting practices. Lynch and Hussain have insisted that their practices were standard and that they kept nothing from the US giant.
A number of media reports this weekend reveal that a KPMG due diligence report appears to corroborate Lynch and Hussain's version of events. Lynch on Friday said the report, which was made public after another legal action was brought by US shareholders in a US court, airs many of the issues that HP contends were obfuscated. These include hardware sales and the way reseller revenue was booked, as well as clear advice on European accounting standards differing from those in the US.
"The KPMG report directly contradicts the statements HP made about Autonomy on which its whole case is based," Lynch told Reuters. "HP said it did not know things that it plainly did."
Yesterday, Fortune magazine reported that former HP chairman Ray Lane communicated doubts over the Autonomy deal to then-CEO Leo Apotheker.
In a message dated 4 September, 2011, a month after the deal was announced, he wrote: "I am still haunted by Autonomy itself. I don't think it's the panacea we think it is. I read the analysis you provided me of their organic growth and I still see them as a roll-up." He also asked Apotheker to look into ways of backing out of the deal, but the CEO said he was "99% sure" that was not possible.
Weeks after that exchange, the board fired Apotheker, replaced him with Meg Whitman, and the Autonomy deal closed shortly afterwards, in October. The following November, HP was forced to take an $8bn write-down on the acquisition.
Despite Lynch's claims of what the KPMG report proves, HP continues to deny it knew of the practices disclosed in the report. A statement reads: "For more than two years prior to HP's acquisition of Autonomy, Mike Lynch and Sushovan Hussain conducted a systematic and sustained scheme to make Autonomy look like a rapidly growing, pure software company whose performance was consistently in line with market expectations. It was a lie. The reality was that their company was experiencing little or no growth, was losing market share, and its true financial performance consistently fell far short of market expectations."