(FROM THE WALL STREET JOURNAL 5/6/15)
By Robert McMillan
Hewlett-Packard Co. said Autonomy Corp. improperly reported $709
million in revenue over 2 1/2 years before H-P bought the British
software maker for $11 billion in 2011, as it fleshed out fraud
allegations against former Autonomy executives.
H-P sued Autonomy's former Chief Executive Michael Lynch and
former Chief Financial Officer Sushovan Hussain on March 30,
seeking approximately $5.1 billion in damages.
In Tuesday's court filing, H-P said Autonomy sought to boost
revenue -- and ultimately its market valuation -- through improper
practices: reselling computers made by other companies at a loss,
engaging in suspicious software-licensing deals with partners, and
restructuring data-hosting deals so that they generated more
revenue upfront.
Autonomy reported nearly $2.1 billion in revenue from 2009
through the first half of 2011, the period over which H-P said it
improperly booked more than $700 million. The biggest chunk,
roughly $318 million, included deals where Autonomy sold its
products through resellers or hosted other companies' data on its
computers.
In the filing, H-P said Mr. Lynch gave the go-ahead to start
selling "pure hardware at a loss," in late 2009, pushing sales
executives to boost their numbers. H-P said Mr. Lynch offered one
executive, Michael Sullivan, a Porsche if he could resell $10
million worth of hardware that quarter. The filing doesn't say
whether Mr. Sullivan got the car.
The allegations shed new light into H-P's long-running dispute
with Mr. Lynch, whom H-P fired in 2012, just seven months after
buying his company.
The Autonomy acquisition was engineered by H-P's former CEO Leo
Apotheker, but ultimately inherited by the company's current boss,
Meg Whitman, who voted in favor of the deal while she was a member
of H-P's board.
In a telephone interview Tuesday, Mr. Lynch said that after
three years of alleging impropriety in the acquisition, H-P hasn't
produced a smoking gun. "What they are raising are accounting
disputes," he said. According to Mr. Lynch, Ms. Whitman and her
team misunderstood the way Autonomy was booking its revenue.
In an email sent via his publicist, Mr. Hussain said that even
using H-P's accounting, the deals still delivered cash flow to
Autonomy. "When you remove the revenue in the way H-P has, you are
left with a cash surplus of over $450 million, with no
explanation," he said. "I think that says it all."
H-P bought Autonomy with an eye toward making its data-analysis
software a signature product as it reinvented itself as a
high-margin software company. Instead, the deal became emblematic
of H-P's dysfunction.
It wasn't clear from Tuesday's filing how H-P missed the red
flags about Autonomy's practices during its review of the potential
acquisition.
H-P declined to answer questions about the court filing.
In a statement, the company said that Messrs. Lynch and Hussain
presented Autonomy as "a rapidly growing pure software company
whose performance was consistently in line with market
expectations," while in reality the company "was experiencing
little or no growth, it was losing market share, and its true
financial performance consistently fell far short of market
expectations."
H-P took an $8.8 billion write-down a year after buying
Autonomy. In January, the U.K's Serious Fraud Office said it had
closed a nearly two-year probe into Autonomy, after determining
that there was no "realistic prospect of conviction."
H-P also referred the case to the U.S. Securities and Exchange
Commission and Federal Bureau of Investigation.
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