Former Autonomy CEO Mike Lynch on Nov. 27 sent an open letter to Hewlett-Packard's board of directors, asking it to come up with evidence of any fraudulent activity that occurred at the company he founded and ran for 17 years.
HP's rapid response, boiled down a bit: Um, we'll see you in court, Doc.
This conflict has been brewing ever since HP acquired U.K.-based Autonomy for $11.1 billion in August 2011, during the brief CEO reign of Dr. Leo Apotheker, who turned out not to be the long-term leader the iconic IT giant needed.
HP revealed in its Nov. 20 earnings report to the Securities and Exchange Commission that it was forced to take a whopping $8.8 billion "intangible asset impairment" charge for the huge acquisition in 2011 that another former HP CEO, Mark Hurd, and Apotheker had advocated. HP cited some serious accounting and credibility problems. Investors and analysts alike were not pleased.
The company said in its quarterly report that the accounting issues took place just before the acquisition and thus accounted for the majority of the charges in the quarter, which totaled more than $5 billion.
Autonomy's software handles control of unstructured data for enterprises. It makes search engines that help companies find vital information stored across computer networks. Acquiring the company was part of an attempt by HP to strengthen its portfolio of high-value products and services for corporations and government agencies.
What HP Claims to Have Found in the Books
HP's explanation to the Securities and Exchange Commission of the huge charge-off included allegations of "serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy that occurred prior to HP's acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long term."
Among the tricks used at Autonomy, CEO Meg Whitman said on the Nov. 20 conference call to analysts and reporters, was that it had been booking the sale of servers as software revenue and claiming the cost of making the machines as a marketing expense. Revenue from long-term contracts also was booked up-front, instead of over time, Whitman said.
Upon hearing of the write-off and that he was basically being scapegoated by HP for all the financial problems because he held tight control of all Autonomy administration, Lynch was reportedly incensed and immediately denied any impropriety.
So Lynch wrote an open letter to the HP board Nov. 27. Here is the complete text:
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