Judge questions HP’s ‘exaggerated’ Autonomy loss claim

HP’s valuation of Autonomy, the company it acquired in 2011 for $11bn and took a $5bn financial hit on in 2012, is “substantially exaggerated”.

In 2022, HP successfully argued that Autonomy’s senior management team had inflated the value of the company, which meant HP paid over the odds.

However, the latest twist in this ongoing legal saga suggests that the $5bn financial hit HP took may have been its attempt to counter a fall in market capitalisation by devaluing some HP assets.

The 22 July court ruling stated that HP is owed almost £700m due to the difference between the acquisition price of Autonomy and the price based on the company’s true financial position. Reuters reported that HP is also entitled to another $47.5m for losses suffered by Autonomy group companies in relation to hardware sales and other transactions.

However, Justice Robert Hildyard said: “I consider that HP’s claim was always substantially exaggerated: and I have concluded that there is more than a grain of truth in Dr Lynch’s submission ... that when ... HP announced that it was writing down the value of Autonomy by $8.8bn and attributed some $5bn to alleged fraud, the figure was not based on detailed analysis. Rather, it was predominantly calibrated by reference to the perceived need to reduce the carrying value of some of HP’s assets to take account of the diminution of HP’s market capitalisation following a fall in HP’s share price.”

The judge found the valuation of Autonomy to be £23.00 per share, compared with the acquisition price HP paid, of £25.50 per share, representing a 9.8% reduction.

On 19 August 2024, Autonomy’s CEO and co-founder Mike Lynch died when his luxury yacht sank in a storm off the coast of Sicily.

In a posthumous statement, Lynch wrote: “Today’s High Court ruling reflects that HP’s original $5bn damages claim was not just a wild overstatement – misleading shareholders – but it was off the mark by 80%. HP acquired Autonomy for $11.6bn and today’s judgment is a view that Autonomy’s actual value was not even 10% below the price HP paid. This result exposes HP’s failure and makes clear that the immense damage to Autonomy was down to HP’s own errors and actions.”

In June 2024, a few months before his tragic death, Lynch was cleared of fraud in the US. Following a 12-week trial in San Francisco, the jury cleared Lynch of 15 counts of fraud and conspiracy that had been brought against him by HP, which alleged that he had inflated the value of Autonomy.

In his written statement for the UK case, Lynch discussed the difference between the UK and US courts: “An appeal process will be considered later this year. The English civil case included hearsay evidence from the US, and we were never able to question or cross-examine those witnesses. This is in direct contrast to the rights of defendants in the US legal system. When in the US criminal trial we were able to cross-examine the relevant witnesses, a very different story emerged. Why is the English legal system so trusting?”

Regarding the $5bn write-down HP took after acquiring Autonomy, and HP’s attempt to boost its market capitalisation, Lynch wrote: “Autonomy was lined up to take a disproportionate hit.”