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Greenberg: What’s the Next Autonomy?

Wednesday, 21 Nov 2012 | 1:51 PM ET

It's the longest running drama on Wall Street: the Hewlett Packard soap opera. And its latest episode could be aptly titled "The Anguish of Autonomy".

PM Images | Stone | Getty Images

The obvious question: Are more tears out there?

Which company, like Autonomy, was red-flagged by short-sellers and forensic analysts—only to get bailed out by a blind buyer?

The most famous, perhaps, was Mattel's 1999 purchase of The Learning Company, then co-run by Kevin O'Leary, now a star of TV's Shark Tank. As I pointed out at the time, it blew up and almost took Mattel with it after the deal was done.

There have been others, including Medtronic's 1999 purchase of stent-maker Arterial Vascular Engineering—another short favorite. (My take at the time.)

Which gets us to who's next?

One to watch: Medtronic (yes, again), which recently completed the $755 million acquisition of China Kanghui Holdings, a Chinese orthopedics implant company. A month ago I questioned whether Medtronic was "buying trouble."

The deal (as was the case with Mattel and Hewlett Packard ) comes as Medtronic's sales and earnings growth have stagnated and it stretches for new growth. For Mattel and Hewlett Packard it was software; for Medtronic it's China.

China Kanghui had been the focus of quite a few short-sellers and forensic analysts, raising various accounting and earnings quality questions. Medtronic told me it had conducted "extensive" due-diligence.

Maybe, but Australian hedge fund manager John Hempton of Bronte Capital, who is among those who had been raising red flags on Autonomy, has also been a critic of China Kanghui. "We think almost all earnings are fudged upwards....on the ground research finds even more problems," he said.

He added: "If you understood the revenue was being 'fudged' at Autonomy you lost money as HP foolishly bought it. China Kanghui is a complete mess."

Whether China Kanghui comes back to haunt Medtronic remains to be seen. But this much is clear: If it does, Medtronic won't be able to say it wasn't warned.

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