Hewlett-Packard (HPQ) Declares War on Autonomy

Shares of computing giant Hewlett-Packard (HPQ: Charts, News) slid last week, after the company reported that it was being investigated by the U.S. Department of Justice over allegations that its subsidiary, British software firm Autonomy Corp., had engaged in accounting malpractices prior to being acquired by HP in October 2011.

Last month, HP claimed that it was misled into overpaying for Autonomy, which it acquired for $11.1 billion under former CEO Leo Apotheker's short and stormy reign. Daily Chart
As a result, HP was forced to write off $8.8 billion to review and repair Autonomy's problems, with $5 billion was directly "linked to serious accounting improprieties, misrepresentation and disclosure failures." HP states that the investigation was triggered by a whistleblower in "Autonomy's leadership team" after Autonomy founder Mike Lynch left the company. Lynch has stepped forward in defense of his former company, stating, "It is extremely disappointing that HP has again failed to provide a detailed calculation of its $5 billion write-down of Autonomy, or publish any explanation of the serious allegations it has made against the former management team, in its annual report filing today." HP is now being sued by numerous shareholders over the debacle, while HP is suing Autonomy and its auditors - KPMG and Deloitte - for compensation. This fiasco is only the latest episode in HP's collapse since the departure of its popular CEO Mark Hurd in August 2010. Hurd had been regarded as the turnaround CEO for the aging computing giant, cutting jobs and reducing expenses heavily while staying the course with stable, but less innovative, product launches. Hurd was ousted by the Hewlett-Packard board after allegations of an improper relationship with a female HP contractor surfaced. Hurd was immediately hired by Oracle CEO Larry Ellison, much to the chagrin of HP investors. Without a proper CEO in place, HP then engaged in a costly bidding war against its rival Dell (DELL: Charts, News) for data storage company 3Par. HP eventually won in September 2010, paying $2.35 billion - a 200% acquisition premium - leading analysts to wonder if Dell had intentionally baited HP into overpaying. 3Par was also required to pay Dell a $72 million termination fee to break its initial merger agreement. Then came Leo Apotheker, who took over the reins of HP from November 2010 to September 2011. Apotheker, who had served as co-CEO of German software company SAP (SAP: Charts, News) for two years, attempted a radical, rapid turnaround by abandoning its personal computing business in favor of higher-margin cloud computing and data storage solutions. In theory, this change - which mirrors the transformation of IBM (IBM: Charts, News) in 2005 from a personal computer manufacturer into a data storage giant - could have succeeded in the long term. Unfortunately, in his haste to abandon HP's personal computer business and rapidly expand its data storage capabilities, he spearheaded the acquisition of Autonomy - HP's costliest blunder to date. After Apotheker was fired and replaced by former eBay (EBAY: Charts, News) CEO Meg Whitman, HP reversed Apotheker's decision to spin off its personal computer business, instead opting to find an alternative way to turn it around to counter the rise of smartphones and tablets. HP then laid off 27,000 employees in a massive restructuring in May 2012. Whitman's efforts have yet to pay off, as HP reported a GAAP adjusted loss of $6.41 per share, down from a profit of $3.32 a year earlier, in its most recent quarter. Revenue also slid 7% to $30 billion. This has certainly been a nasty two years for HP shareholders. Its stock price has slid nearly 70% since Mark Hurd's departure. Although the company is quick to blame changing computing trends, started by Apple's (AAPL: Charts, News) seminal iPhone and iPad devices, for its losses, a brief review of its history of botched deals and leadership changes shows that HP's management has done itself - and its long suffering investors - no favors. Other News About HPQ HP Says That it Overpaid for Autonomy After Management Lied About its Finances HP launches a serious offensive against Autonomy. Hewlett-Packard Says Justice Department Probing Autonomy Will the DOJ's probe work in HP's favor? Other Stocks in the News Apple Inc. Fined In China For Copyright Infringement Apple gets fined over copyrighted works from Chinese authors. Research In Motion Regains Ground in Post-Holiday Bump Research in Motion shows signs of life after a busy holiday shopping season. Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. 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Published on Jan 3, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2016. Content published with author's permission.

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