How a desperate HP suspended disbelief for Autonomy deal
By Poornima Gupta and Nadia Damouni and Paul Sandle
SAN FRANCISCO/NEW YORK/LONDON (Reuters) - For Leo Apotheker, the former Hewlett-Packard CEO, a July 2011 meeting with Autonomy founder Mike Lynch at a chic seaside resort in France was pivotal to his effort to remake a storied technology giant.
In the nine months since taking the helm at HP, Apotheker had tried furiously to find a way to move the lumbering company away from its low-margin computer hardware business and into the lucrative corporate software and services arena. Apotheker was looking for a big, transformative acquisition, two people familiar with the situation said, and after overtures to several companies went nowhere, he set his sights on Autonomy.
After two months of negotiations on what was known at HP as "Project Tesla," Apotheker sat down with Lynch at a hotel in Deauville on the Normandy coast - and shook hands on what would become an $11.1 billion deal.
The Autonomy takeover was indeed a bombshell - but not in the way that Apotheker had hoped. When it was announced in August 2011, HP's stock plummeted amid withering criticism of the price tag. Within weeks, Apotheker was out of a job. Within months, Lynch and his new masters at HP were at war.
Inside a year, Lynch had been forced out and HP was investigating allegations of major accounting irregularities at Autonomy. That culminated in HP saying last week it was writing off more than three-quarters of the value of Autonomy, and telling U.S. and UK regulators about alleged accounting fraud.
The implosion of the Autonomy deal has raised questions about how HP and its army of lawyers, accountants and investment bankers could have overlooked warning signs and gone ahead with the acquisition.
Reuters spoke with close to a dozen people directly connected with the deal or the accounting investigation. The picture that emerges is of a company so desperate to plot a new course that it may have been far too accepting of Autonomy's published and audited accounts.
It has also cast a shadow over Lynch, widely regarded as a brilliant but difficult executive; he left HP in May and has flatly rejected the company's claims of accounting shenanigans or that HP had been deliberately deceived. Continued...