Analysis: For tech investors, it's hard to know when to bolt

Thu Dec 27, 2012 1:43pm EST
 

By Sam Forgione and Nicola Leske

(Reuters) - When Hewlett-Packard Co agreed to buy British software company Autonomy in August last year for $11.1 billion, two well-known investors made diametrically different bets on how the big deal would play out.

To short seller Jim Chanos, who had been raising red flags on Autonomy for years and had started shorting shares of HP in 2011, the deal was another nail in the coffin of the Silicon Valley tech giant, according to a source familiar with his thinking.

But to activist investor Ralph Whitworth, co-founder of Relational Investors LLC, it was time to commit to HP and the turnaround story the company was trying to sell to Wall Street. His fund bought more than 17.5 million HP shares after the deal was announced, and Whitworth received a seat on the company's board. This year, Relational roughly doubled its stake in HP.

In the wake of HP's decision to take an $8.8 billion write-down on the deal because of alleged accounting irregularities at Autonomy, it appears Chanos - whose call to short Enron before the energy company collapsed in a corporate scandal may be his most famous trade - was more astute.

HP's shares are down 36 percent since Relational, which declined to comment, built its stake in the third quarter of 2011.

BARRIERS TO ENTRY

Relational's big move into HP is a reminder that even smart investors can get things wrong in the fast-evolving technology sector, where once hot global names like Research in Motion and Yahoo can quickly become yesterday's news.

It is a world where a company may effectively erect barriers to entry in a market only to have them torn down by a rival with a new whizz-bang product - just as Apple's iPhone broke the dominance that Research in Motion's BlackBerry had enjoyed.   Continued...

 
A man walks past the Hewlett Packard logo at its French headquarters in Issy le Moulineaux, western Paris, in this September 16, 2005 file photograph. REUTERS/Charles Platiau/Files