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First a corporate spying scandal, then the abrupt departure of a CEO, followed by the dismissal of his chosen successor, and now an $8.8 billion write-down as a result of an another acquisition gone awry. For Hewlett-Packard, the bad news just keeps coming.
The Palo Alto–based computer and information technology giant announced Tuesday that it has asked regulators in both the United States and the United Kingdom to probe alleged financial improprieties involving British software company Autonomy, which HP acquired for $11.1 billion last year, according to sibling publication Law Technology News.
As LTN noted when the acquisition was announced, the all-cash deal was the largest-ever in the legal technology sector, given Autonomy's role as a leading e-discovery and document management provider. But the acquisition—about which some observers voiced skepticism, especially with regard to how much HP had agreed to pay—hasn't turned out the way HP and former CEO Leo Apothekar envisioned.
After only 11 months on the job, Apothekar was fired as HP's top executive in September 2011 and replaced by former eBay CEO Meg Whitman. In the months that followed it became apparent that the Autonomy deal, which saw seven Am Law 100 and international firms play key advisory roles, was going sour.
Autonomy founder Mike Lynch left HP in May as part of an exodus of former Autonomy executives that included Andrew Kanter, who served as the Cambridge, England–based company's COO and general counsel. Kanter, who once practiced at now-defunct Silicon Valley firm Brobeck, Phleger & Harrison, is now with an investment firm called Invoke Capital, which Lynch launched this fall.
While Kanter was not immediately available for comment on the allegations of "accounting improprieties" and "outright misrepresentations" that HP has leveled against Autonomy, the Irish-born Lynch has publicly refuted those allegations in several interviews. Lynch claims that HP is merely trying to shift blame for its own mismanagement of the company. Bloomberg reports that the Autonomy transaction is just one in a series of bad deals to make their way onto HP's balance sheet in recent years, and others have pointed out that the company's explanation for its astronomical losses have been somewhat difficult to decipher.
As for the many lawyers advising HP and Autonomy on their ill-fated union, most are staying mum. Reuters, The New York Times's DealBook, and The Wall Street Journal have reported that while the accounting and law firms that worked on the matter will likely face questions about why Autonomy's dubious bookkeeping is only now coming to light, it remains unclear who gets the blame for missing it in the course of due diligence. (DealBook also examined what future legal proceedings related to the HP/Autonomy matter might look like.)
One attorney on the periphery of the transaction who spoke to The Am Law Daily on the condition of anonymity says one potential problem inherent in putting together such large public M&A transactions is that they often come together quickly and in the heat of competitive pressure. "These deals often happen in a hurry," the lawyer says. "And then you've got to worry about other bidders."
Reuters reported at the time HP's acquisition of Autonomy was announced in August 2011 that the proposed acquiror's rivals might well come forward with competing bids for Autonomy. The target's sale to HP eventually closed in October 2011. In the months that followed, several of the lawyers who worked on the transaction moved on to new jobs.
Former HP general counsel Michael Holston left the company in December 2011, according to sibling publication The Recorder. Four months after departing HP in a move that a knowledgeable source says was unrelated to the Autonomy acquisition, Holston was named chief ethics and compliance officer for New Jersey–based pharmaceutical giant Merck.
