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HP takes $8.8B charge tied to Autonomy

by Lou Whiteman  |  Published November 20, 2012 at 9:59 AM
Hewlett Packard Co. said Tuesday it was taking an $8.8 billion charge stemming from "serious accounting improprieties" at its Autonomy unit, sending shares of the troubled computer company plunging more than 10% at open.

Palo Alto, Calif.-based HP bought British software company Autonomy Corp. for $10.8 billion in 2011, part of a plan by then-CEO Léo Apotheker to remake the computer and printer company around software and services for business. The deal was criticized by numerous analysts and investors, and helped lead to Apotheker's ouster soon after.

Famed short seller Jim Chanos this summer called HP "the ultimate value trap." Chanos said he first became interested in HP when it bought Autonomy, another company the investor had shorted.

HP, now under the direction of Meg Whitman, stopped short of saying there was fraud at Autonomy but said there were grave concerns. The company said it had discovered "serious accounting improprieties, disclosure failures and outright misrepresentations" at Autonomy that occurred prior to the acquisition.

The company said much of its $8.8 billion charge was linked to those issues, and the associated impact of those issues on the Autonomy business over the long-term.

Whitman on a conference call with analysts Tuesday morning said the issues were discovered during an internal investigation that began after a senior member of Autonomy's management team came forward following the May departure of former Autonomy CEO Mike Lynch.

A representative for Lynch told Reuters that the executive was listening to HP's conference call, and expects to issue a statement later in the day.

HP has reported the issues to regulatory authorities in the U.S. and United Kingdom, and could also seek damages in civil court. The disclosure could also present issues for Deloitte & Touche LLP, Autonomy's auditor. HP said Tuesday that it relied on Autonomy's audited reports when purchasing the company.

The disclosure is the latest blow to HP, which has been struggling to cope with shrinking PC sales and a disastrous M&A strategy. The company last year abandoned the assets of Palm Inc. just a year after buying that company for $1.2 billion, pulling the plug on smartphones and tablets using Palm's operating system shortly after they launched.

HP earlier this year took a separate $8 billion write down against its 2008 purchase of Electronic Data Systems Inc.

Tags: accounting | Autonomy Corp. | Deloitte & Touche LLP | Electronic Data Systems Inc. | fraud | Hewlett Packard Co. | Jim Chanos | Léo Apotheker | Meg Whitman | Mike Lynch

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