HP Working to Maintain Focus Despite Lawsuits

Evan Koblentz

Law Technology News

12-10-2012

Note: This story has been updated with information about additional lawsuits.

In the continuing saga of Hewlett-Packard Co. and Autonomy Corp., the head of Autonomy's content management unit said November 29  that he hopes to improve transparency for customers in the wake of financial scandal allegations — but otherwise it's business-as-usual.

"I think we need to do more in terms of cutting through the noise and reaching out," said Neil Araujo, general manager, enterprise content management.

Autonomy makes software to manage, search, and perform e-discovery on unstructured data. HP acquired it last year for $11.1 billion, but HP executives this month accused former Autonomy leaders of intentionally and artificially inflating the company's worth.

Araujo has a long history with the company. He joined Autonomy when it acquired his previous employer, Interwoven Inc., in 2009. Interwoven had acquired iManage Inc. in 2003, which Araujo co-founded in 1995. As a result, he's known many current customers for more than 10 years, both on a personal and professional basis, he said. "They've been extremely supportive." But predictably, Araujo would not comment on whether he knew of accounting concerns at Autonomy prior to HP's accusations, which were announced on November 20.

The turmoil began in August 2011. First, HP announced its intention to acquire Autonomy for $10.3 billion, despite questions from investors about whether it was prudent, because HP historically was a hardware company. Software giant Oracle Corp. publicly mocked the price HP paid for Autonomy, and then paid much less for Endeca, a similar company. Meanwhile, HP executives were questioned by analysts and investors for suggesting an exit from the personal computer and mobile device businesses. Next, CEO Léo Apotheker lost his job, Meg Whitman replaced him, and HP leadership decided to retain the personal computer unit. Autonomy deal completed in October 2011 for $11.1 billion.

Flash forward: HP's corporate situation worsened after several investors filed lawsuits accusing HP and related plaintiffs of making misleading statements and not acting for investors' best interests:

• Allan Nicolow sued HP on November 26, and named Whitman, Apotheker, CFO Catherine Lesjak, and senior vice president James Murrin as co-defendants. Nicolow is seeking class-action status for HP shareholders and is represented by Robbins Geller Rudman & Dowd, known for plaintiff recovery cases.

• Ernesto Espinoza filed on November 27 against the same as Nicolow, adding Autonomy founder Michael Lynch; HP board members; and advisory firms Barclays Capital, Deloitte, KPMG, and Perella Weinberg Partners UK. Espinoza is represented by Robbins Umeda, which was involved in previous litigation against HP. The firm also represents Phillip Ricciardi who filed a suit similar to Espinoza's.

• Real estate firm Newman Ferrara issued a press release on Nov. 27 stating that it's also seeking class-action status, although associate Roy Shimon said Friday no suit has been filed. Shimon declined to elaborate on the discrepancy.

• Also on Nov. 27, Bernstein Liebhard announced a securities class action. "Defendants concealed that [HP] had gained control of Autonomy in 2011 based on financial statements that could not be relied upon because of serious accounting manipulation and improprieties. In addition, defendants concealed known negative business trends concerning the profit margins of the company’s enterprise services business, formerly known as Electronic Data Systems Corporation (EDS), which Hewlett-Packard had acquired in August 2008 for $13.0 billion," officials of the New York-based firm stated.

• On Nov. 30, Pomerantz Grossman Hufford Dahlstrom & Gross filed a class action of its own, alleging that "throughout the class period, [HP] made materially false and misleading statements". HP did not reveal that it tried to exit the Autonomy acquisition, the firm claims.

HP also saw its stock downgraded on November 28 by the Moody's service, and took a public critique from Sequoia Capital partner Aaref Hilaly, the former CEO of Autonomy competitor Clearwell —  which was bought in May 2011 by HP competitor Symantec Corp. — "Anyone who's dealt [with] Autonomy (customers, partners, competitors) will not be surprised," he tweeted. HP competitors also took their opportunities to ding the company. OpenText Corp. announced a software trade-in program for Autonomy customers on November 26, followed by a similar announcement from Recommind on Nov. 29.

Corporate matters aside, Autonomy products generally rate well among customers, partners, and technology analysts. Whitman made that point in a November 21 conference call for Autonomy and HP customers, and Araujo emphasized it. "I honestly feel the business is in a better position than it's ever been. I could have done without all of this drama," he noted. "There is no change to our roadmap or our product plans," he said. "We are just much more conscious that we've got to do a really good job with customers than anything else."

Officials said HP and Autonomy intend to announce new products coinciding with HP's user conference December 3-4 in Frankfurt, Germany. HP is based in Palo Alto, Calif.; Autonomy is headquartered in Cambridge, U.K.

For more on the HP-Autonomy story, see The Recorder, In Autonomy Debacle, HP Turns to Morgan Lewis.

Evan Koblentz is a reporter for Law Technology News. Send email or follow him on Twitter.