Anyone else just dumbstruck at what’s going on over at HP?
Late last year, HP spent $11 billion to acquire Autonomy, a British software company. Today, it just wrote off $8.5 billion of that deal and accused the management of Autonomy of pretty serious fraud in cooking their books. Basically, something like $5 billion in accounting “errors.” The FBI and the British have opened a case.
Wait a sec? How does this happen in this day-and-age post-Enron? Who was Autonomy’s accountant? Some fly-by-wire company? Nope. Deloitte, one of the Big Four. But didn’t HP do any kind of due diligence? Well, it hired KPMG to double-check the books.
So what we have here is all sorts of delicious possibilities.
HP is completely incompetent, which is very possible, and this is all some crazy “The Dog Ate My Homework” excuse to try and explain an embarrassing write-down. Whatever the case, the deal was made by Leo Apotheker, but current CEO Meg Whitman was on the Board of Directors that okayed this deal, and she’s not sure as hell can’t plead innocence.
This must have been some insanely sophisticated fraud to get pass two of the Big Four accounting giants.
Or this is Deloitte and KPMG being incredibly incompetent.
This is just the latest in a ridiculous line of scandals at HP. (Pretexting, Mistressgate).
Well, you are suggesting that HP is lying to cover up a write-down, which isn’t exactly going to go over well with shareholders or feds. That would be far worse. Which leaves us with either 2 or 3. Not that 3 would surprise me . . .
Probably 3. Too much cocaine and confidence (complacency) combining perhaps? Still for HP to make this public and strong an assertion will only lead to fireworks for all involved.
Deloitte and KPMG aren’t incompetent. It’s more likely that they did exactly what the people hired them to do - which is check the boxes in a half-assed manner and just approve the damn books in a hurry so everyone can be stars. The difference between hardware and software licensing or up-front vs subscription licensing is lost on most people not in the business. The accountants in the trenches were at the mercy of whatever the company sales directors told them, and they damn sure weren’t going to ruin the C-level folks’ wheeling and dealing.
I have little doubt the accounting firms were incompetent, as were the legal and business teams that did the due diligence.
I am constantly amazed at how superficially due diligence investigations are conducted, even for very large acquistions – the “A-team” working for the acquirer typically only gets involved at one lengthy meeting with management and the bankers – the nuts and bolts due diligence is typically done by junior staff and/or individuals who rely almost entirely upon personal interviews of the target’s management instead of actually rolling up their sleeves and analyzing primary information/document sufficiently to independently verify what they’re being told by target employees/bankers.
The reason this type of “surprise” doesn’t happen more often isn’t because the accountants and rest of the M&A team competently investigate – it’s because most people actually conduct their business honestly, even if they round a few corners.
Although I agree that, until the appropriate investigations are performed, it’s way too early to start claiming those firms were negligent. Remember that Arther Andersen was one of the “big five,” and they displayed an extraordinary level of incompetence/criminality when they audited Enron. Just because KPMG and Deloitte are huge accounting firms doesn’t mean their audits are sacrosanct.
Just saw an interview with Mike Lynch the owner of Autonomy on the Jeff Randall Show on Sky News. He said HP had made this big PR announcement but there has been no contact from HP at all re the allegations.
It’s all a bit weird really, surely you would at least approach him of those they feel are to blame, instead a PR job feels more like damage limitation to start with.
Yes and yes. I remember reading the article the day it was purchased that Microsoft had turned them down when the price was a bargain-basement $3.5b as being overpriced, which HP proceeded to pay 3x. No amount of customer entre and Big Data cache is worth $7b but hey, its not their money any way, right? Just another 15k jobs on top of the 25k they were already going to lose, give or take.
At least $5b worth, I guess
I have known auditors to be humorless and dense but never that overtly stupid. I read that HP was trying find some way to sink the deal but no one could get them enough leverage to break out of it. Leo was going to get his IBM, damn the accountant torpedoes: full speed ahead!
My favorite was shoe-horning a promising but rushed OS onto pre-existing compromise tablet hardware and then pulling the plug 6 weeks later when it went over like a lead zeppelin, which of course lead to one of the biggest fire sales of all time. That was comedy gold!
HP has been run by self-indulgent asses and morons since 1999. If it wasn’t for their engineering talent and several excellent design teams the company would be beyond heopless. The BoD’s and Executives have done everything in their power to ruin a once great name.
Deloitte and KPMG are being sued over their alleged role in Hewlett Packard’s controversial purchase of Autonomy.
An HP shareholder says the US PC-maker paid too much for the UK software firm.
The lawsuit, filed in California on Monday, accuses the two auditors and other named defendants of failing in their duty to spot that Autonomy was not worth as much as it claimed, and then misrepresenting the deal’s value.
Both firms have denied responsibility for valuing Autonomy at the time.
“Simply put, HP grossly overpaid for Autonomy,” claims the legal action, which was brought by Philip Ricciardi, an HP shareholder since 2007.
Last week, HP announced that it was writing off $8.8bn of the $11.1bn it paid for Autonomy, of which $5bn was “linked to serious accounting improprieties, misrepresentation and disclosure failures”.
HP’s boss, Ms Whitman, said that her firm had relied on the work of the UK unit of Deloitte Touche Tohmatsu, which had acted as Autonomy’s auditor prior to the acquisition.
She also said HP had relied on KPMG’s audits of Deloitte’s work.
The computer maker said it would be taking civil action itself to try and recover money for shareholders.
