HP admits to overpaying for Autonomy, says it misrepresented its financials

HP has admitted that it overpaid for software company Autonomy, saying that it was misled by management about the company’s finances.

The purchase means the tech giant took a US$9-billion hit following accusations an investigation into “improprieties” at the British company.

The investigation was reportedly triggered by a someone from within Autonomy. According to HP: “senior member of Autonomy’s leadership team came forward, following the departure of Autonomy founder Mike Lynch, alleging that there had been a series of questionable accounting and business practices at Autonomy prior to the acquisition by HP.”

That’s nearly as much as the US$10-million it paid for the company in 2011. The deal saw Autonomy CEO Mike Lych join HP, while running Autonomy as a separate business unit, reporting to Meg Whitman.

He then left the company earlier this year following a disappointing quarter for Autonomy. By that stage, most of Autonomy’s senior executives had already left the company.

In its official statement on the matter HP said it was “extremely disappointed” in Autonomy’s failure to disclose its “improprieties”:

HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition by HP. These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal. We remain 100 percent committed to Autonomy and its industry-leading technology.

It also said it had referred the matter to the relevant authorities:

HP has referred this matter to the US Securities and Exchange Commission’s Enforcement Division and the UK’s Serious Fraud Office for civil and criminal investigation. In addition, HP is preparing to seek redress against various parties in the appropriate civil courts to recoup what it can for its shareholders. The company intends to aggressively pursue this matter in the months to come.

HP is not however questioning the full rationale of the deal, insisting that it still has value. That’s probably more about gritting and grinning for investors than anything. Paying for the mistakes of previous management is seriously hurting the company and things won’t get better any time soon. Most of the company’s revenue streams are down and aren’t expected to pick up for a while.