Irish entrepreneur rejects HP's accusations of malpractice
AN IRISH technology entrepreneur yesterday "flatly rejected" accusations of malpractice after Hewlett Packard accused his former company of effectively cooking its books before it bought the firm for $10.3bn (€7.5bn).
HP bought Autonomy in October 2011. That deal resulted in a payout estimated at more than €600m for Michael Lynch, a Tipperary native who set up the company in 1996.
Mr Lynch left the company in May after Autonomy's revenue missed market expectations, but yesterday HP shocked markets by writing down the value of the company by $8.8bn (€6.9bn). About $5m of that came amid what it called "disclosure failures and outright misrepresentations at Autonomy" before HP bought it.
The problems came to light, HP said, "after a senior member of Autonomy's leadership team came forward following the departure of Autonomy founder Mike Lynch".
However, Mr Lynch denied the allegations, with his spokesman telling Reuters he "flatly rejects" these "false accusations".
Mr Lynch was "shocked to see" the case made against him as senior management at HP were "closely involved with running Autonomy for the past year," the spokesman added.
The accusations, if found to be true, are damning. The company claimed Autonomy engaged in numerous practices, including the "mischaracterisation of revenue from negative-margin, low-end hardware sales with little or no associated software content" as Autonomy's high-end Intelligent Data Operating Layer (IDOL) product, apparently to show IDOL sales were doing better than they really were.
The firm also used "licensing transactions with value-added resellers to inappropriately accelerate revenue recognition, or worse, create revenue where no end-user customer existed at the time of sale", HP said. In effect, Autonomy was reporting sales where there were none, it alleges.
"This appears to have been a wilful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers," HP added.
The matter has now been referred to regulators in the US and UK, it added.
When the US giant bought Autonomy, it paid a 64pc premium on the company's share price at the time. A number of analysts claimed HP overpaid for the data analysis firm. Oracle had refused to pay $6bn for Autonomy, claiming it was "way too high".
Despite the allegations, HP chief executive Meg Whitman, who took over after the acquisition was agreed, said she remained committed to Autonomy.
Shares in HP plunged more than 12pc on the news, falling to its lowest price in a decade.
The allegations will put huge pressure on Mr Lynch. When he left HP in May, market watchers blamed the corporate culture at the computing giant for suffocating the entrepreneur, and the software industry was eagerly awaiting his next project.
The writedown helped push HP into a loss overall for its fourth quarter. Excluding exceptional items, however, HP recorded full-year earnings per share of $1.16 on revenue of $30bn, broadly in line with market expectations.