HP Sued by Shareholder Over $8.8 Billion Autonomy Charge

 
 
By Jeffrey Burt  |  Posted 2012-11-27
 
 
 

Hewlett-Packard is seeing the first investor lawsuit over the debacle surrounding the $11 billion acquisition last year of business software maker Autonomy.

A week after HP executives announced that the massive tech company would have to pay an $8.8 billion charge after serious financial and accounting problems at Autonomy were unearthed, an HP stockholder who reportedly owns about 200 shares is filing suit against HP and several top executives, including CEO Meg Whitman, former CEO Leo Apotheker and Chief Financial Officer Cathie Lesjak.

In the suit filed Nov. 27 in federal court in San Francisco, shareholder Allen Nicolow accuses HP and its executives of giving false and misleading statements about the Autonomy deal by not admitting that the acquisition was a failure in hopes of protecting the HP's stock price. When HP executives made the deal to buy Autonomy in 2011, "defendants were looking to unwind the deal in light of the accounting irregularities that plagued Autonomy's financial statements," the lawsuit reads. In his complaint, Nicolow is looking for the suit to gain class-action status and for damages for stockholders who bought shares between Aug. 19, 2011, and Nov. 20, 2012.

The suit does not specify the amount of damages being sought.

HP executives already are trying to steady a company that has seen its financial numbers fall for the past couple of years, particularly since Mark Hurd resigned as CEO in 2010 following allegations of misconduct. What followed has been a difficult two years for HP, punctuated by everything from the swift contraction of the worldwide PC market to seemingly constant management turmoil, best illustrated by the rapid turnover of CEOs, from Hurd to Apotheker to Whitman. The results have been a series of disappointing quarterly financial numbers, a plunging stock price and a restructuring of the company that includes some 29,000 job cuts.

Whitman told analysts in October that it will take years to get the tech stalwart back to strong growth, and said the key problem for HP has been the revolving lineup of executives.

"My belief is that the single biggest challenge facing Hewlett-Packard has been changes in CEOs and executive leadership, which caused multiple inconsistent strategic choices and, frankly, some significant operational miscues," Whitman said during the Webcast meeting. "It's going to take longer to right this ship than any of us would like."

Many analysts have pointed to the Autonomy situation as a symptom of HP's larger managerial problems. Negotiations to buy the company began under Hurd, and the deal was closed during Apotheker's 11-month tenure. It was seen as a cornerstone of Apotheker's efforts to make HP more of a software company.

HP announced Nov. 20 that after an internal investigation, the company found that former Autonomy executives "used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy's acquisition by HP. These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management's ability to fairly value Autonomy at the time of the deal." Mike Lynch, the founder and CEO of Autonomy who came to HP after the deal but has since left, defended Autonomy, blaming HP for any problems with the deal.

Whitman has pointed to Apotheker and other former HP executives as culprits as well, though analysts have pointed out that Whitman was on HP's board of directors at the time the deal was approved. A Nov. 26 article in The Wall Street Journal said that others besides Apotheker should shoulder some of the blame, including Whitman and Lesjak.

The Autonomy charge is only the latest problem over acquisitions that HP is dealing with. In August, the company announced it was paying an $8 billion charge because of disappointing results from its $13.9 billion acquisition in 2008 of services vendor EDS.

Despite all the issues surrounding HP, not all analysts are negative about the company. In a Nov. 25 blog post, Forrester analyst Richard Fichera said the company is dealing with a host of challenges, and that a number of questions need to be answered in connection with the Autonomy deal. Still, at its core, HP is a solid technology company with good products, strong engineers and managers, and tens of thousands of customers around the world, Fichera wrote.

"HP is a $120 billion company, and despite its stock price being in the basement (unfairly, so I think), HP remains at its heart a very efficient supplier of critical infrastructure for the modern enterprise," he wrote. "Fundamentally, if you are interested in making sure your corporate computer resources will keep you competitive in the 21st century, HP is a perfectly viable and competitive supplier.  … If you are a user contemplating the purchase of data center infrastructure such as servers and storage, the recent bizarre track record of HP's management and board should not distract you from the fundamentals—evaluate HP's products on their merits and HP's ability to deliver required product and services to your company, not the media frenzy surrounding flawed judgment of current and previous executive management. HP is not going to disappear over the few odd billions of dollars of accounting manipulations. It will remain a serious competitor."

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