US technology giant Hewlett-Packard has shocked the markets with an accounting scandal relating to Autonomy, the British software group it bought last year. HP said it was writing down the value of the $11bn takeover by $8.8bn, largely because of “serious accounting improprieties”.
According to HP the alleged fraud was brought to light by a whistle-blower from Autonomy’s team after founder Mike Lynch, who rejects the allegations as “utterly untrue”, was fired in May. HP’s shares have fallen to a ten-year low.
What the commentators said
“You may wonder why, if there was jiggery-pokery at Autonomy… it went unnoticed by so many pairs of eyes”, said Economist.com. Deloitte, Autonomy’s auditor, signed the accounts. Six investment banks on Autonomy’s side, and two on HP’s, were involved. And people had been warned, added Nils Pratley pointed out in The Guardian.
Autonomy had always “seemed to be in perpetual war with half the City’s analysts over accounting treatments”. Even when the takeover was going through last year, technology experts “blogged furiously about aggressive revenue recognition”.
HP says it was lied to, said Pratley, and the courts will decide whether Autonomy wilfully misled it. Even if it did, though, HP hardly helped itself: because it had fallen on hard times, it was “desperate to find an instant fix”.
Changing the focus from the ailing personal computer business to software with an eye-catching acquisition – at a 64% takeover premium – seemed just the ticket. HP was “hot to trot, and therefore ripe for a mugging”, agreed Jeremy Warner in The Daily Telegraph.
This row has overshadowed HP’s worsening overall performance. The shares won’t recover any time soon, said Rolfe Winkler in The Wall Street Journal. HP has had to write down the value of previous acquisitions too; its IT services business is being squeezed by competitors; and its servers and data storage division is struggling in a commoditised market. In short, HP is “a complete mess”.