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Days before Hewlett-Packard announced the ill-fated $11bn acquisition of Autonomy, it seems that chairman Ray Lane pleaded with then-CEO Leo Apotheker to nullify the deal.
Lane emailed HP's independent directors requesting a last-minute meeting, stating "received new news this morning that I'm still trying to digest."
The communications were contained within a trove of documents, released last Friday after they were filed as exhibits in the class action lawsuit brought against HP by shareholders.
The disclosed files reveal that Lane emailed Apotheker shortly after the deal to voice concerns that Autonomy was a ‘roll-up’, a company that relies on acquisitions for growth.
“I’m still haunted by Autonomy itself,” he wrote. “I don’t think it’s the panacea we think it is. I don’t think the board thought that (at least I don’t remember that discussion) this was largely a roll-up when we contemplated the price.”
Apotheker brushed Lane’s concerns aside. "I disagree that Autonomy is a roll-up in the 'classical' sense. They did a few acquisitions, less than many other software companies of similar size, and integrated them all into their platform IDOL. By doing so at 40 per cent margin they have demonstrated the power of the platform, as well as the capability of the management team," he responded
HP has long accused Autonomy of cooking the books and has filed to sue Autonomy founder Mike Lynch and chief financial officer Sushovan Hussain for $5.1bn. Lynch and Hussain have maintained their innocence, claiming that they followed standard practices and were completely open and transparent with the US firm.
The newly released files may throw a significant spanner in HP’s lawsuit. They highlight a KPMG due diligence report, which indicates that HP was warned that Autonomy’s growth rate would be adversely affected due to the differences between US and European accounting standards.
"The KPMG report directly contradicts the statements HP made about Autonomy on which its whole case is based," Lynch told Reuters. "HP said it did not know things that it plainly did."
HP reiterated its stance in a canned statement on Friday.
“HP had no knowledge of Lynch and Hussain's contrived sales to value added resellers and other improper transactions and accounting practices, all of which artificially inflated Autonomy's reported revenues, misrepresented its rate of organic growth and overstated its gross and net profits.”