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  • hopping_on_bandwagon hopping_on_bandwagon Nov 20, 2012 9:11 AM Flag

    Details from "Squak Box" on $8B Writedown

    HP is alleging it was the victim of massive fraud when it purchased UK company Autonomy for $10.3B in October of last year. Taking an $8.8B write down on Autonomy. More than $5B of that is due to what HP calls "serious accounting improprieties, misrepresentations and disclosure failures" at Autonomy that occurred prior to its purchase of Autonomy. Last May, after Autonomy's CEO was fired by HP CEO Whitman, a senior exec from Autonomy came forward with evidence of wide-spread accounting fraud which occurred before it was acquired. HP began investigations, and after 7 months have concluded that these accounting improprieties inflated Autonomy's worth by $5.3B. HP and its then CEO Leo Apotheker relied on audited financials (Deloitte). Autonomy (allegedly) pursued a number of avenues to make its margin, growth rate to appear far higher than it actually was. For example, Autonomy sold computer hardware at a loss to supplement revenues and then took much of the cost of those sales and treated it as a marketing cost so that gross margin would not be impacted. Another example - company pulled forward its key sw product Idle and gave money to its VARs to buy the product. Lastly, investigation was conducted by Price, Waterhouse Cooper - found that Autonomy paid a high upfront licensing fee but then charging them very low fees over a long period of time. All of this to make margins appear to be 45% when they were really closer to 28%. HP has referred this matter to SEC. Also, since Autonomy is a UK company, it has also been forwarded to UK fraud office. HOP

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    • More from the Squak Box, as the team (led by David Faber) discussed among themselves ... HP will pursue its own civil litigation, probably after the SEC and UK office investigation. Apotheker did the deal. Dr Lynch (founder and CEO of Autonomy) was fired by Whitman because he came in so far below from the target numbers for Autonomy. HP doesn't use the word "fraud" in any of its statement releases, but uses every other word in the book to express the same idea. There was another $3.5B writedown on Autonomy today (goodwill). What does this say about Deloitte, and the Board (for paying such a high multiple to begin with) ? HP still thinks Autonomy is still a strong business. Whitman will join CNBC at 10:45AM today. HOP

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