Hewlett-Packard's Then-Chairman Ray Lane Tried to Quash Autonomy Acquisition
September 25 2015 - 4:51PM
Dow Jones News
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
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
September 25, 2015 16:36 ET (20:36 GMT)
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