Are the losses that computer company Hewlett-Packard Co. have sustained since acquiring a U.K. software company due to fraud on the software maker’s part or mismanagement by H-P? As of now, both sides are blaming the other. H-P has asked the Securities and Exchange Commission to investigate the subsidiary, which is called Autonomy, for accounting irregularities after announcing a write-down of Autonomy’s value by $8.8 billion.
H-P purchased Autonomy, one of Europe’s biggest software companies, for $11.1 billion in October 2011. But now H-P says that Autonomy executives exaggerated the value of their company. Specifically, H-P alleges that Autonomy told it that some hardware sales were software sales and claimed some sales deals that fell through as revenue. An Autonomy executive reportedly reported concerns about the company’s accounting practices to U.S. business regulators a year before the H-P acquisition, though the agencies may not have had jurisdiction at the time because Autonomy did not trade on the U.S. stock exchange.
However, H-P says, it relied on Autonomy’s auditor and an outside firm, both of whom reported no questionable practices. But after that, sales consistently failed to meet H-P’s expectations.
For its part, Autonomy denies attempting to deceive anybody about its finances. The company’s former CEO blames the heavy losses on H-P. He noted that H-P has had three CEOs in as many years.
It remains to be seen if the dispute will lead to litigation between H-P and Autonomy. Given the amount of money at stake, such litigation could be lengthy and expensive for both sides.
Source: Wall Street Journal, “H-P Says It Was Duped, Takes $8.8 Billion Charge,” Ben Worthen, Nov. 20, 2012
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