HPQ HP Inc

By Robert McMillan 

Just days before Hewlett-Packard Co. announced its disastrous $11 billion Autonomy acquisition, Chairman Ray Lane mounted a last-ditch effort to get H-P's then-CEO Leo Apotheker to quash the deal.

That revelation is buried in an analysis of the acquisition commissioned by H-P and written by the company's legal firm, Proskauer Rose LLP in early 2014, long after H-P had taken a $8.8 billion write-down on Autonomy.

The report is part of a trove of documents released in late August by a Northern California federal court in a continuing shareholder lawsuit over the deal.

According to the report, Mr. Lane called a 'special Board meeting of outside directors," on August 17, 2011, just a day before H-P announced the acquisition, saying he had "new news this morning that I'm still trying to digest."

There are no minutes for that meeting, convened via telephone, and the report doesn't specify what news Mr. Lane, an early backer of the purchase, had obtained.

"Outside directors agreed that Lane would approach Apotheker to ask that he re-consider whether [the] acquisition should be pursued" but that Lane and the directors would support Apotheker's decision if he still thought it should go forward, the report stated.

Neither Mr. Lane nor Mr. Apotheker could immediately be reached for comment.

H-P's stock dropped 20% in price the day after the deal was announced.

The company now maintains Autonomy engaged in accounting fraud, improperly reporting $709 million in revenue over a 2 1/2-year period. Earlier this year, H-P sued former Autonomy CEO Michael Lynch and former Chief Financial Officer Sushovan Hussain for $5.1 billion.

The documents include a KPMG LLP analysis of the deal that was commissioned by H-P. The analysis stated that Autonomy didn't furnish half of the information KPMG sought including details on Autonomy's revenue recognition, expenses and management forecasts.

Mr. Apotheker didn't read that document, according to the Proskauer report. If he had, H-P's chief would have had a clearer idea what he was getting into, Andy Kanter, Autonomy's former chief operations officer, said in an interview.

"H-P had no knowledge of Lynch and Hussain's contrived sales to value-added resellers and other improper transactions and accounting practices, all of which artificially inflated Autonomy's reported revenues, misrepresented its rate of organic growth and overstated its gross and net profits," H-P said in an emailed statement on Friday.

Mr. Lynch, via a spokesman for him and Mr. Hussain, on Friday said: "HP clings to its false and baseless allegations, even as their own documents, which for years they have tried to bury, undermine their claims of ignorance."

In the weeks after the deal, the new documents show, Mr. Lane emailed Mr. Apotheker to say he was concerned that Autonomy was a so-called roll-up, a company whose growth was dependent on acquisitions rather than organic growth. "I'm still haunted by Autonomy itself," he wrote. "I don't think it's the panacea we think it is. I don't think the board thought that [at least I don't remember that discussion] this was largely a roll-up when we contemplated the price."

A few weeks later, H-P fired Mr. Apotheker.

Autonomy's Mr. Kanter blamed H-P's issues on a strategic shift away from software within the company rather than any problems with Autonomy itself. "When we set out to do this transaction, we did this with a [H-P] CEO who was extremely software-focused," Mr. Kanter said in the interview. "We could have never envisioned that, weeks after the deal, that vision could have been torn up."

Write to Robert McMillan at Robert.Mcmillan@wsj.com

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(END) Dow Jones Newswires

September 25, 2015 16:36 ET (20:36 GMT)

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