One of the greatest corporate disasters, to say the least, over the last few years was the acquisition of Autonomy by Hewlett-Packard.
H-P bought the company in 2011 for $11.1 billion and within one year wrote off $5 billion off the investment. How could one of the most successful technology companies make such a colossal mistake?
H-P and U.S. prosecutors claim that Autonomy executives intentionally inflated the company’s profit and loss statements in a manner that materially misstated the company’s value for a multi-year period. Former Autonomy executives claim that HP simply mismanaged the entire transaction and integration after the acquisition closed. It did not help that the HP chief executive officer who championed the deal, Leo Apotheker, was fired after agreeing to the deal but before the transaction was closed. The next CEO, Meg Whitman, went ahead with the closing even though she was dead set against the deal.
Currently, a criminal trial is ongoing against former Autonomy executive Sushavan Hussain for his alleged falsification of Autonomy accounts in the United States. The SEC has also concluded Autonomy engaged in fraud in a civil proceeding. Finally, there an upcoming civil trial between HP and the former owners of Autonomy. Most interestingly, the U.K. Serious Fraud Office investigated Autonomy and closed its file, finding insufficient evidence of criminal wrongdoing.
For The Man From FCPA, the sordid tale provides two very teachable points for the compliance profession. First, clearly HP failed to engage in thorough pre-acquisition due diligence to understand the nature of Autonomy’s finances. Secondly, after closing, H-P did an equally poor job of integration. Whether it was intentional due to the new leadership of Meg Whitman or some other reason may not be known until the long awaited civil trial. Yet, the lessons are clear: Failure to engage in an appropriate level of pre-acquisition due diligence and post-acquisition integration will doom a deal.