Meg Whitman Says HP Was Defrauded By Autonomy; HP Stock Plunges

McGruber writes "CNBC is reporting that Meg Whitman claims HP was defrauded in its purchase of Autonomy. 'We believed there is a willful effort on the part of certain members of Autonomy management to mislead shareholders when Autonomy was a publicly traded company, and to mislead potential buyers including HP,' Whitman said. 'We stand by the forensic review that we've seen,' she added. I wish her the same level of success I had when I filed an eBay claim." Also covered at SlashBI, which names the write-down damage: $8.8 billion.

Comments

Meg, Carly

[tekrat]

This is a love letter...

Please don't run any other companies into the groud. Please stop whatever you're doing and go home, and avoid public life as a CEO, or politician. You've both proven you don't know jack.
The world would be better off without either of you.

Thanks;
The rest of the planet.

Re:Meg, Carly

[Ryanrule]

A dead parrot could have run ebay just as well. They were alone in a huge growth market.

Red herring

[Runesabre]

I find it hard to believe that the management of HP failed to uncover fraud of this magnitude during their evaluation in the purchase of Autonomy. What this really means is management failed to do their due diligence in evaluating Autonomy and now need to to distract from poor financial performance due to a lack of competence at the executive level.

Re:Red herring

[Anonymous Coward]

I think it's clear that the HP management needs a massive pay rise while everyone else in HP needs to take a pay cut and work longer hours to cover this loss!

Re:Red herring

[Patch86]

Autonomy was a successful money-making business. When HP bought it, there wasn't a soul alive who couldn't see that they were paying an extremely generous price. Take the following article on the BBC at the time:
http://www.bbc.co.uk/news/business-14582489

HP paid 64% above the publicly-traded market price for the company. On the markets hearing the news, HP shares ended the trading day 7.6% down, making them the worst faller in the Dow Jones Industrial Average that day.

Maybe the management at Autonomy were telling porkies to convince HP to pay that much- but why the hell would HP swallow it? If everybody else could see it was mad, why couldn't they?

Re:Red herring

[garyebickford]

Good luck with that. There are numerous cases in recent history where large companies have managed to hide their problems prior to a merger, or prior to going completely bust. It can be very, very difficult to figure out the details of how big complex companies are put together - even for the company's own accountants. It can be analogized to the halting problem, or the shortest route problem. A big company's internal transactions constitute a huge dependency graph with an almost unlimited opportunity for cycles within the graph, and then there are all the external transactions - which ones are truly 'external'?

For example, a company like Best Buy may have over one thousand subsidiaries, nested three to four levels deep, in over 100 countries. None of those countries require the level of accounting rigor of the US, especially since Sarbanes-Oxley (the so-called 'Enron law' - case in point). Now try to analyze millions of transactions large and small between the various subsidiaries and to/from outside entities, and determine which of those transactions is part of a complex money laundering process, and which ones are part of some accountant's method for skimming money off the top. In fact, with a company that big and complex, the odds are that several of the accountants or executives in smaller subsidiaries are, in fact, skimming - perhaps by 'selling' goods to a dummy company that never happens to pay its bills. Now separate those actions from some larger process that the parent company has set up to avoid visibility of losses.

It can happen by accident as well, without any intent to do evil. I know of a at least one IPO that was cancelled when a company doing the required due diligence before going public discovered to their dismay that while they thought they were going gangbusters, they were in fact insolvent (hint: growth is expensive). So instead of IPO, bankruptcy followed.

There are zillions of other ways to use 'creative' accounting methods to hide problems - companies often don't know until it's too late. It's a mistake to consider a large corporation as a monolithic entity. One group of large companies that I work with literally don't know who their customers are - they are the product of dozens of mergers over decades, and have never integrated the accounting systems together - I won't go into why that is but there are good reasons, which are related to risk, cost and disruption.

tl;dr: the complexity of companies can be arbitrarily large; finding problems may be impossible with the limited data available prior to merger.

Wait a second...

[fuzzyfuzzyfungus]

So, an 8.8 billion write-down on an 11.2 billion purchase and they are only alleging that "serious improprieties", rather than something like "epic, the-whole-boardroom-is-going-to-federal-country-club-for-maybe-five-years-or-so, fraud"?

Either corporate PR drivel is unusually polite, or white collar crime is absurdly superior on a risk/reward basis compared to little people crime...