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Thursday, 24 January 2013 12:27

HP could have avoided Autonomy deal

Written by Nick Farrell



Auditor flagged improper accounting allegation


HP had a chance to get out of the $11 billion software deal it almost instantly regretted, but missed it. According to the Wall Street Journal, outside auditors for British software maker Autonomy mentioned that an executive there had raised an allegation of improper accounting at the firm.

Auditors added that the allegation was found to be groundless, but  HP executives never passed this mention on to their board or chief executive. Apparently HP regretted buying Autonomy within days and was looking for a way to get out of it.
Chief Financial Officer Cathie Lesjak said an acquisition would batter HP's balance sheet, using up its cash and incurring debt. Only half of the directors were focused on Autonomy.  HP's normal procedures require the board's finance committee to review and approve deal proposals before they reach the full board. That didn't happen with the proposal to acquire Autonomy.

The thing was that the HP finance committee chairman was among directors most sceptical of the Autonomy idea, but ultimately he joined in a unanimous vote to buy it. During due diligence, HP directors were surprised by how little detail about Autonomy 's finances were given them. Autonomy declined to provide them, citing UK corporate-takeover rules that require companies to disclose the same documents to all potential suitors. The only reason that this did not bother HP was because Autonomy was a public company that had been audited for years.

Accounting firm KPMG helped HP with its due diligence. At one point, people from HP and KPMG spoke by telephone to a group from Autonomy's longtime outside auditor, the U.K. affiliate of Deloitte Touche. The Deloitte team mentioned that about a year earlier, an Autonomy finance executive had alleged improper accounting at Autonomy.

Three of these people said Deloitte mentioned the issue briefly and added that a review had found the allegation to be baseless.   For some reason HP didn't investigate further and didn't share the information. Had it done so it might have had a reason to delay or walk away from the sale.   Now that  HP is claiming that there was shady accounting at Autonomy, these sorts of things are pretty important. Deloitte said that it "categorically denies that it had any knowledge of any accounting improprieties or misrepresentations in Autonomy's financial statements.

More here.

Nick Farrell

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