Saturday, November 24, 2012

To have one $8 billion dollar writedown, Ms. Whitman, may be regarded as a misfortune. To have two looks like carelessness.

Ryan McCarthy in Counterparties:
HP has become the place where synergies go to die. In its earnings release today, HP said it has taken an $8.8 billion writedown, caused by what it calls “serious accounting improprieties” at Autonomy, a software company it acquired for $11 billion in August 2011. This, as David Benoit notes, is HP’s second acquisition-related $8 billion writedown of the year.

HP is furiously pointing fingers: in a statement, the company said there was a “willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics”. And CEO Meg Whitman told analysts that Deloitte had signed off on Autonomy’s accounts, with KPMG signing off on Deloitte. Still, only $5 billion of this quarter’s write down came from Autonomy’s accounting; the rest came from those pesky “headwinds against anticipated synergies and marketplace performance”.

There’s a strong case that HP should have smelled a rat. Bryce Elder points to “a decade’s worth of research questioning Autonomy’s revenue recognition, organic growth and seemingly flexible definition of a contract sale”. Then there’s the scathing statement which came about a month after the HP sale, in which Oracle revealed that it too had looked at Autonomy, but considered the company’s $6 billion market value to be “extremely over-priced”. Lynch, for his part, says that he was “ambushed” by the allegations.
I love the phrase "flexible definition."

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