U.S. District Judge Charles Breyer, Northern District of California (Hillary Jones-Mixon / The Recorder)
SAN FRANCISCO — Hewlett-Packard Co. has agreed to pay $100 million to end a shareholder class action over the company’s ill-fated 2011 acquisition of British software firm Autonomy.
If approved, the proposed settlement would resolve claims that the company’s directors misled shareholders about Autonomy’s value before writing down the purchase by $8.8 billion in 2012.
The settlement figure ranks among the top 15 securities fraud recoveries in the Northern District of California, according to plaintiffs’ lawyers with Kessler Topaz Meltzer & Check, and represents more than 25 percent of estimated recoverable damages. The lawyers plan to ask U.S. District Judge Charles Breyer for no more than $11 million in fees and $1.25 million in costs, far less than the 25 percent benchmark set by the U.S. Court of Appeals for the Ninth Circuit.
“Lead plaintiff respectfully submits that the proposed settlement is an excellent result for the settlement class,” plaintiffs lawyers, led by partner Eli Greenstein, wrote in a brief filed Tuesday, “especially in light of the substantial challenges and risks it faced in establishing defendants’ liability, and demonstrating the full amount of recoverable damages.”
The company is represented by Wachtell, Lipton, Rosen & Katz partner Marc Wolinsky. HP’s insurance will cover the costs, the company wrote in an online statement.
“While HP believes the action has no merit, it is desirable and beneficial to HP and its shareholders to resolve the case as further litigation would be burdensome and protracted,” the statement reads.
The deal would be the largest federal securities settlement paid out by HP, according to data collected by the Securities Class Action Clearinghouse, which dates back to 1995. Last year HP agreed to pay $57 million to resolve claims that it misled shareholders about its purchase of Palm Inc. and its plans for the WebOS operating system.
The Autonomy suit originally named HP, Autonomy founder Michael Lynch and six of HP’s top executives as defendants, including HP CEO Meg Whitman, former CEO Leo Apotheker, Chief Financial Officer Catherine Lesjak and former chairman Raymond Lane. Ruling in 2013, Breyer allowed claims to proceed against the company and Whitman.
But Breyer limited the case to statements made by Whitman during three days in 2012, dismissing claims related to statements Whitman made before a company whistleblower came forward.
“Plaintiffs’ claim has survived a motion to dismiss on issues of scienter and causation, but success is not guaranteed if this matter were to proceed to jury trial,” plaintiffs lawyers wrote. “In particular, there could be reasonable disagreement regarding what portion of losses incurred by class members was attributable to defendants’ conduct in relation to general market conditions.”
Class certification was pending when the parties reached the deal. Lawyers for the class first reached an agreement with HP last month, after mediation with retired U.S. District Judge Layn Phillips of the Western District of Oklahoma.
Shareholders will receive an average return of 10 cents per HP share.
The legal fallout from the HP-Autonomy deal won’t end with the class settlement. HP sued Lynch and former Autonomy chief financial officer Sushovan Hussain for $5.1 billion in the United Kingdom earlier this year, and Lynch has indicated he plans to file a countersuit against HP for more than $148 million.
In March, Breyer granted preliminary approval to a deal that would resolve shareholder derivative claims stemming from the Autonomy acquisition. That deal, the fourth attempt to settle the case, provides for reforms within HP, but no cash. Breyer rejected the last proposal because he said it released HP from claims that had nothing to do with Autonomy.
The lawyers behind Tuesday’s settlement seemed to take Breyer’s prior criticism into account. In a footnote, they specified that their settlement releases HP only from claims that relate to the Autonomy action.
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