How a Desperate HP Suspended Disbelief for Autonomy Deal
Apotheker said last week he was "stunned and disappointed" to learn of Autonomy's alleged accounting issues. He declined to be interviewed for this story through a spokesperson.
As the deal was being considered, HP CFO Cathie Lesjak did raise questions about HP's ability to pay such a high price and whether it could integrate Autonomy well, sources said.
Lane said the board approved the deal based on the recommendation of management. "That recommendation was based on misleading audited financial statements and misrepresentations made by Autonomy's executives," he said in an email. "In hindsight, we shouldn't have done the Autonomy deal at such a high price. We were lied to and as a result, we got it wrong."
By the time the deal was agreed, though, Apotheker was already running out of time. He had wanted to sell HP's personal computer business but was unable to complete a deal. He announced a strategic review of the division - to the horror of many employees and the consternation of some of its customers.
That misstep, along with series of missed financial targets, led to Apotheker's firing in September 2011 - before the Autonomy deal had even closed. Board member Whitman - who had voted in favor of buying Autonomy - then took over as CEO. The acquisition still went ahead - and quickly went south.
Brutal Culture Clash
The clash between HP's polite, slow-moving bureaucracy and Autonomy's in-your-face sales culture could not have been starker. Lynch also chafed at his new, subordinate position, according to the sources. He routinely shut HP management out of key decisions and - true to his company's name - resisted full integration with HP. He complained constantly about red tape.
After he was forced out in May of this year, Lynch returned to HP in June to discuss severance. But he found himself on the receiving end of a barrage of questions about Autonomy's accounting, sources briefed on the investigation told Reuters.
HP General Counsel John Schultz quizzed Lynch specifically on a range of accounting items, including at least three sales deals from a couple of years before, one of the sources said. Lynch's reply to most questions was that Deloitte, its auditor, signed off on various items, or he could not remember specifics.
"If there were no problems, he could have explained it," one of the sources said. "He simply refused to have the conversation."
But Lynch was caught unaware: Hence he did not have information about those deals at hand, said a source familiar with his version of events. Lynch's spokeswoman said that the allegations HP made last week "were not put to him in June."
The legal struggle has only just begun. HP has handed documents over to the U.S. Securities and Exchange Commission and the UK Serious Fraud Office, and the U.S. Department of Justice is also involved, a source told Reuters last week.
HP also on Tuesday threatened legal action against parties involved, though stopped short of naming targets. HP has challenged Lynch to answer questions under penalty of perjury.
"He ran this company like a small private company, he was involved in all facets of the company, he was extremely hands on," said a source close to the matter who knew the former Autonomy CEO. "For Lynch not to know about this, if it is truly happening, would be far-fetched."