HP alleges that Autonomy artificially inflated its own worth
In a shocking turn of events, tech giant Hewlett-Packard (HP) has requested the UK's Serious Fraud Office to launch an investigation into Autonomy, the British software company it acquired last year for $11.7 billion. Before the acquisition, Autonomy's accounts were deemed 'true and fair' by Deloitte, and this was confirmed by KPMG, HP's auditor. However, HP's recent findings paint a different picture. Following the announcement, HP's share price dropped 7.5%. The decline was further exacerbated by an $8 billion write-down of the value of HP's IT services division in August. The current predicament stems from a forensic review conducted by PwC, which discovered accounting irregularities in Autonomy's reporting of revenue. The review found that licensing transactions with value-added resellers were used to inappropriately accelerate revenue recognition or create revenue where no end-user customer existed at the time of sale. Moreover, the review uncovered that low-margin hardware sales were mischaracterized as 'IDOL product' and improperly included as 'license revenue', accounting for 10-15% of Autonomy's reported revenue during the two years before the acquisition. HP states that former Autonomy management used accounting improprieties, misrepresentations, and disclosure failures to inflate the financial metrics of the company. The key person implicated in the suspicion of misrepresentation of Autonomy's financial values and accounting violations before Hewlett-Packard's acquisition was Mike Lynch, the founder and former CEO of Autonomy. In its financial results published today, HP reported a 7% drop in revenue to $30 billion for the three months ending October 31. Sales at HP's newly merged printer and personal systems division dropped 11%, while only HP's software division grew, by 14%. In light of these findings, HP will seek redress in the civil courts regarding the alleged misrepresentations by Autonomy's former management. The company remains committed to Autonomy and its industry-leading technology, but the investigation and potential legal action could have significant implications for the future of the company. HP has written down the value of its software business by $8.8 billion, reflecting the impact of these misrepresentations and lack of disclosure on the company's ability to fairly value Autonomy at the time of the deal. The forensic review also found that HP management's ability to fairly value Autonomy at the time of the deal was severely impacted by these misrepresentations and lack of disclosure. This news follows a series of setbacks for HP, including the $8 billion write-down of its IT services division and the departure of former CEO Leo Apotheker, who was instrumental in the Autonomy acquisition. The company is currently led by Meg Whitman, who has been tasked with turning the company around. As the investigation unfolds, the tech industry will be closely watching HP's next moves. The outcome could have far-reaching implications for the tech industry, particularly in the area of mergers and acquisitions.
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