Hewlett-Packard is asked to prove it was duped over Autonomy deal [San Jose Mercury News]
(San Jose Mercury News (CA) Via Acquire Media NewsEdge) Nov. 27--The war of words over Hewlett-Packard's (HPQ) stunning allegation that it was duped into paying billions of dollars too much for British software company Autonomy intensified Tuesday with an angry demand for proof from Autonomy's former CEO.
In a letter to the Palo Alto tech giant's board of directors, Mike Lynch repeated his previous denial that his firm's value had been misrepresented before HP bought it for $11 billion last year and asked for "immediate and specific explanations for the allegations HP is making."
In response, HP issued a statement noting that "while Dr. Lynch is eager for a debate, we believe the legal process is the correct method in which to bring out the facts and take action on behalf of our shareholders."
HP hasn't named anyone responsible for the alleged misrepresentations. But its statement said the company "will take legal action against the parties involved at the appropriate time," adding, "in that setting, we look forward to hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury."
HP's accusations about Autonomy last week represented the latest in a string of embarrassing revelations from the storied Silicon Valley corporation, which in recent years has been wracked by turmoil in its top executive ranks, slumping
sales and occasional deep plunges into red ink.
After the Autonomy disclosure on Nov. 20, HP's shares sank to their lowest point in a decade. Its stock price has rallied a bit since then, but fell again by 38 cents -- or nearly 3 percent -- to $12.36 at the close of trading Tuesday.
The information Lynch sought includes:
--"The calculations used" for HP's claim that, as part of its recent $8.8 billion write-down for buying Autonomy, "more than $5 billion is linked to serious accounting improprieties, misrepresentation and disclosure failures." Lynch's letter said many observers "fail to understand how HP reaches that number."
--Justification for HP's accusation that some of Autonomy's hardware sales before HP's purchase had been mischaracterized, since Lynch said those sales shouldn't have significantly affected Autonomy's value.
--Details on how HP failed to spot problems with Autonomy when it bought the company. "Please explain," Lynch wrote, "how such issues could possibly have gone undetected during the extensive acquisition due diligence process" before HP finalized the deal in October 2011 and after that, when Autonomy's finances were overseen by HP Chief Financial Officer Cathie Lesjak.
--Why HP's senior management waited so long "to inform its shareholders of the possibility of a material event related to Autonomy."
Saying he has been "shocked and appalled by the events of the past week," Lynch added in his letter that "I utterly reject all allegations of impropriety."
In its response, HP noted that it has referred its claims to U.S. and British regulatory authorities and "we will defer to them as to how they wish to engage with Dr. Lynch." The company also reiterated its previous claim that "we have uncovered extensive evidence of a willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers."
Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.
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