Hewlett-Packard Company’s (HPQ) decision to buy U.K-based business software maker Autonomy Corp. seems to have compounded the challenges already being faced by the tech giant after accusations of accounting irregularities surfaced recently. The disclosure of certain accounting misappropriations in Autonomy’s financials has made the buyout more costly.
Earlier this week, H-P reported its fourth quarter results. The company incurred loss per share of $3.49, which resulted from a gruesome non-cash impairment charge of $8.8 billion.
The charge was mainly to set off the effect of the Autonomy acquisition and certain issues related to the recent trading value of its stock. The bulk of the charge (roughly $5.0 billion) was to nullify the improper accounting practices relating to Autonomy’s financials prior to the acquisition.
Looking Back
In August 2011, the then H-P CEO Leo Apotheker announced a major restructuring plan, focusing more on the high-growth and high-margin businesses. The restructuring plan involved the divestiture of H-P’s lower-margin PC business, disposal of the webOS business and the buyout of U.K-based business software maker Autonomy Corp. Though the idea of spinning off the PC business was dropped later on, the closure of the webOS business did not make a difference to H-P’s financial results.
Autonomy, a specialized provider of unstructured data analytics and data management software, was purchased for a premium price of $11.1 billion. The acquisition of Autonomy was expected to strengthen H-P’s software offerings. Management also expected the unit to be accretive to non-GAAP earnings per share within the first full year of completion, i.e. by the fourth quarter of fiscal 2012.
The Curtain Raiser
After complete integration, Autonomy started contributing to H-P’s Software segment revenues from the fourth quarter of 2011. Management felt that the market and competitive positioning of Autonomy’s cloud offerings would remain strong and undertook initiatives to improve the performance of the unit to match market demand. Eventually, during the second quarter of 2012, the H-P chief replaced Mike Lynch (founder of Autonomy) with Bill Veghte as the Software division’s executive vice president.
After Mike’s departure, a senior official from Autonomy’s leadership team brought the accounting missteps to management’s notice, which promptly responded to the situation with a thorough investigation of Autonomy’s financial reports before the takeover. The PC emperor has also sought advice from the SEC's Enforcement Division and the UK's Serious Fraud Office.