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"A ton on me, a ton on me, they've all dumped a ton on me." Meg Whitman. (with apologies to Kenneth Williams in Carry On Cleopatra)

Advice to HP: Take a proper look in the sack before buying a pig in a poke

Posted By TelecomTV One , 21 November 2012 | 0 Comments | (2)
Tags: HP Autonomy Mergers & Acquisitions Technology money Regulation sour grapes

It seems the notion of "caveat emptor" doesn't apply to the world's biggest maker of PCs. By Martyn Warwick.

As any mug, who in a fever of anticipation of quick and easy profit, has ever bought anything at top dollar without looking into the bag to ensure that what was being handed over was actually what was apparently offered, can tell you, it is no use later bleating about being taken for a ride when the very fairground sideshow you are complaining about has been dismantled and sold to the highest bidder - which also happens to be you!

Yesterday HP posted a net loss of US$6.9 billion for Q4 and blamed the debacle on the massive $8.8 billion write-down it has been forced to make after overpaying hugely to get its hands on the British software company Autonomy.

In October 2011 HP splashed $10.2 billion on Autonomy and now, a year and a month later the company claims to have unearthed "serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy" that falsely boosted its figures when HP was negotiating to buy. However, it's a bit late to be complaining. HP conducted due diligence on Autonomy and its expensive in-house lawyers and even more expensive external auditors (HP used both Deloitte and KPMG to audit Autonomy's books) failed to find anything amiss.

What's more, Autonomy shares were publicly traded in the UK and their accounts and financial statements were, by law, subject to checking and sign-off by outside auditors, which they duly were. So let the buyer beware!

But no, HP is now demanding that US and UK authorities investigate what is a long done deal The company says it will "seek redress against various parties". Well, in that case it could do worse than to take a good close its own organisation before flailing around trying to find a scapegoat outside shrapnel-pitted walls of the redoubt in Palo Alto.

Nonetheless, the "findings of an HP internal inquiry have been sent to the US Securities and Exchange Commission (SEC) and the Serious Fraud Office in the UK for criminal investigation." Good luck there, especially with the latter; the CFO's infamous track record of success (or, actually, lack of it) is as laughable as it is lamentable.

And, despite the outraged bluster about "a willful effort by Autonomy to mislead shareholders," HP has a history of paying top whack in haste and then living to repent at leisure (well, leisure for the supine and lethargic board of directors at least, but not for the executives who have to try to clear up repeated messes nor for ordinary workers whose ranks are decimated every time the company reorganises and regroups - as it seems to do every six months or so).

Let us do please remember that only last quarter HP wrote down $11 billion on its acquisition of EDS. HP's attempts to hammer than particular square peg into a round hole have been even more expensive than they have been entertaining.

Meanwhile, the revolving door to the CEO suite is spinning at such a rate that the spindles are in danger of seizing up.

Just look back a comparatively recent HP history. Carly Fiorina, the imperatrix who would fly only on the company jet and would no doubt have used a monogrammed palanquin had one been available, came and went - to be replaced by axe man Mark Hurd who was fired for allegedly fiddling his expenses in an effort to cover up an alleged affair.

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What is not alleged, but is an undisputed fact, is that HP awarded Mr. Hurd the Order of the Golden Boot and off he went on his merry way, pockets a-jingle.

Then came Leo Apotheker. It was Leo, the former SAP man, who during his 10 months at the helm of HP cheerled the purchase of Autonomy and who bludgeoned the buyout through the ranks of quiescent execs and the dozy board. Apotheker was paid $25 million for his 40-something weeks as CEO. That sum included four million bucks as an inducement to join the company and a further $2.4 million "separation agreement" when he was forced out of office. The rest, as usual, was share options.

And now HP has Meg Whitman in charge. She became a billionaire when eBay, was sold and so only takes a one dollar per annum salary from HP. However, last year the HP board, as is their generous wont, awarded the latest iteration of its CEO some $16 million in stock options and $372,000 in the form of "other compensation" - which includes the use of the corporate jet so beloved of Carly Fiorina. Meg Whtman was an HP board member when the Autonomy deal was going through and voted in favour of it.

By the way, HP shares, already in prolonged decline, fell in value by 45 per cent whilst Leo was roaring away. They fell a further 13 per cent yesterday. Good job it's the Thanksgiving holiday tomorrow and the markets will be shut. Unusually though one turkey, other than the lucky bird that the President ritually pardons each year, will be left paddling around in the mire when Wall Street reconvenes next week. It is unlikely to get much of a reprieve unless the HP board takes some swift and serious decisions about the way the company is being managed. Well, as they say, there's a first time for everything.

Mike Lynch, the ex-CEO of Autonomy, whose services were dispensed with by HP in May this says he is shocked by HP's allegations and "flatly rejects" them. He added, "They are completely and utterly wrong and we reject them completely.There was a series of mismanagement steps. They [HP] lost hundreds of the talented people at Autonomy. The whole management team basically went out of the door. Sadly they are left with the results of having destroyed all that value. Now they [HP] are trying to cover it up with this big write off."

Last night Leo Apotheker released a statement to the Wall Street Journal saying that due diligence on Autonomy was "meticulous and thorough," and that he "continues to believe in Autonomy's market potential."

It's like "The Comedy of Errors" - but without a titter running through the room.

Seemingly unable to expand further organically or by dint of innovation, in recent years HP has turned for growth to a series of acquistions such as Compaq, EDS and Palm. It is true that some have fared better than others but since 2001 HP has lashed-out at least $67 billion on acquisitions. To put that in perspective it should be noted that HP's current market capitalisation is about $23.5 billion.

Meanwhile, hidden away in all the smoke, mirrors and verbiage of HPs fulminations against Autonomy is this gem relating to the company's core businesses. It seem that deep down, and discounting the Autonomy hoo-hah, HP is suffering and its share price is falling because of "headwinds against anticipated synergies and marketplace performance."

I blame the beans.

 

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