Updated: HP claims Autonomy misled over finances

Vendor talking to SEC and UK's Serious Fraud Office amid suspicions Autonomy over-valued itself

HP suspects it was duped into paying too much for Autonomy after an internal probe unearthed "serious accounting improprieties" relating to its finances.

The vendor announced this afternoon that it is taking a $8.8bn goodwill impairment charge relating to the UK software firm it acquired last year for $10bn.

More than $5bn of this relates to "serious accounting improprieties, misrepresentation and disclosure failures" it discovered following a review of Autonomy's accounting practices prior to the acquisition.

HP said the accounting irregularities, which it has referred to the US SEC and the UK's Serious Fraud Office, appear to have been a wilful effort to inflate Autonomy's value in the eyes of potential buyers.

HP said in a statement: "As a result of that investigation, HP now believes that Autonomy was substantially overvalued at the time of its acquisition due to the misstatement of Autonomy's financial performance, including its revenue, core growth rate and gross margins, and the misrepresentation of its business mix."

The bombshell came as HP announced that it had sunk to a full-year 2012 GAAP net loss of $12.7bn on revenues that fell five per cent to $120.4bn.

Q4 revenue fell seven per cent year on year to $30bn.

The software division, of which Autonomy is a part, saw sales rise 14 per cent, but HP's PC, printing, services and enterprise kit arms saw sales fall by 14, five, six and nine per cent, respectively.

The remainder of the $8.8bn Autonomy charge relates to the recent trading value of HP stock and "headwinds against anticipated synergies and marketplace performance".

HP launched the internal investigation after a senior member of Autonomy's management team stepped forward to blow the whistle, following the departure of Mike Lynch in May.

The vendor also brought in PricewaterhouseCoopers to conduct a forensic review of the UK software firm's historical financial results.

HP added that it remains "100 per cent committed" to Autonomy.

Update

Since the publication of this story, Lynch denying HP's allegations in a statement released to Reuters.

"The former management team of Autonomy was shocked to see this statement today, and flatly rejects these allegations, which are false," a representative said.

"HP's due diligence review was intensive, overseen on behalf of HP by KPMG, Barclays and Perella Weinberg. HP's senior management has also been closely involved with running Autonomy for the past year."