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PwC finds $5bn black hole in HP's Autonomy deal

HP accuses some former members of Autonomy's management team of "accounting improprieties" prior to its acquisition

20 Nov 2012 Accountancy Age

By Kevin Reed

Driver in Formula One Autonomy team car

A PwC REVIEW has led to the discovery of "accounting improprieties and disclosure failures" in former FTSE100 UK technology business Autonomy, which has forced its acquirer, HP, to write off more than $5bn (£3.1bn) from the deal.

The firm was called in by HP to undertake a forensic review of Autonomy's accounting practices prior to its acquisition. The review was part of an investigation that HP said was sparked by a whistleblower from within Autonomy, described as a "senior member of Autonomy's leadership team", who said there were "questionable accounting practices" at the UK business prior to its acquisition.

HP now believes that Autonomy was substantially overvalued at the time of the deal.

"HP is extremely disappointed to find that some former members of Autonomy's management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy's acquisition by HP," it said in a statement to investors.

"These efforts appear to have been a wilful effort to mislead investors and potential buyers, and severely impacted HP management's ability to fairly value Autonomy at the time of the deal. We remain 100% committed to Autonomy and its industry-leading technology."

A non-cash impairment charge of $8.8bn related to Autonomy was announced in HP's Q4 2012 statement. More than $5bn is linked to the accounting misrepresentations discovered during the investigation. The balance related to the trading of HP stock and a revaluation of autonomy's future performance – and the synergies from the deal.

An example given by HP of the misrepresentations include negative-margin hardware sales mis-described as ‘license revenue', which affected future growth calculations. These negative-margin sales are estimated to represent 10%-15% of Autonomy's revenues.

The Securities and Exchange Commission, and the Serious Fraud Office, have been notified of the issue by HP.

Visitor comments

Too late

Stable door, horse, bolted, with loot!

Posted by Fergal O'Shea, 20 Nov 2012

Due Dilegence

Quite frankly beggars belief; is anyone capable of undertaking due dilegence these days!

Posted by Anthony Sheldon, 21 Nov 2012

Bad Practice

Looks like KPMG and Deloitte have a lot to answer for here. Although, surely the question has to be asked why HP went ahead with the acquisition when PwC were engaged in a forensic investigation...

Posted by Annon, 21 Nov 2012

Caveat emptor

Shocking. Buys i/t company in middle of recession and winges when it's value drops further. Suggest claim against advisors rather than the seller. T

Posted by John, 21 Nov 2012

HP get Lynched!

A software company exaggerating their sales? Unheard of!

Posted by Martin, 21 Nov 2012

Caveat emptor

I agree with the comments above. Buyer beware. You need to do your DD correct. The vendor would have given warranties and there may be comeback under these, but the main point is the buyer needs to do their DD. If they did bad DD, its a bit rich to call in the FBI!!! The Board should be sacked if they cocked up and not start suing people for their mistakes.

Posted by Gary Jones, 24 Nov 2012

Bad Image for Accounting Authorities

I am afraid that from now going forward all business failures are going to be associated with Accounting malpractices.

Why did i choose this profession in the first place? my opinion is that we start to be serious about being more professional, or else no one is going to believe us.

Posted by Godfrey Chanakira, 12 Feb 2013

 

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