Question: H-P- Autonomy Acquisition Case Study
You are a forensic accountant who has been engaged by your client, Magical Technology, Inc., to report on the disastrous acquisition of the UK based software company Autonomy by Hewlett-Packard. Your client wants to understand what went wrong and who was responsible for this terrible financial mess. Your client wants to avoid making a similar mistake so has asked for your help. You have a summary of the acquisition and have agreed with your client that you will perform the following procedures in order to be in a position to report to your client by Thursday June 8:
• You will listen to an interview by the BBC of current H-P CEO Meg Whitman where she discusses the acquisition. You will not have time to interview anyone from H-P or Autonomy so you have agreed to use this interview to help you focus on the key questions.
• You will then conduct your research using information from the internet and company regulatory filings in order to better understand the issues. Keep in mind that there is a great deal of information available and you have a limited amount of time to come to any conclusions.
You will see that there are many different opinions as to what happened and who was at fault.
• You will summarize your findings in a report addressed to your client.Your client has asked you to address the two questions included at the end of this summary. Be careful in determining the format of your report as you want it to be logical and orderly so your client can understand. This is a complex event and the format is intentionally open ended as you should choose the best way to present your findings. Remember you are providing an independent analysis.
Summary of transaction and related events
Hewlett-Packard, an iconic American technology company, acquired Autonomy, a young emerging UK software company, for $11.1 billion during August 2011. This was considered to be a transformative acquisition for H-P as this would make them a player in the emerging "big data" field of data and analytics software. The following are key events related to the acquisition:
• August 2011- Acquisition completed and Wall Street reacts negatively- stock tanks
• September 2011- H-P CEO fired
• May 2012- Autonomy founder and CEO fired
• October 2012- H-P records an expense of $8.8 bill to write off 80% of assets related to Autonomy and accuses Autonomy founder of fraud ($5 bill)
• November 2012- SEC, Dept of Justice, UK Serious Fraud Office investigate the acquisition
• January 2015- UK Serious Fraud Office closes investigation, cedes jurisdiction to US
• November- 2016 former CFO of Autonomy indicted on fraud charges (inflating revenue)
Questions to address in your report
• Can you identify red flags that indicate that H-P may not have understood the business or the accounting? Red flags indicating they may have mismanaged the integration of this very important business?
• How did H-P come to the conclusion a little over a year later that their valuation of the business was wrong, given that they had skilled advisors helping with projections and valuation?