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Summary:

Meg Whitman’s claims that Autonomy executives deliberately misled HP over its $11 billion acquisition are under investigation by the authorities. But whatever the truth, the damage is already done, as the affair further erodes the fragile relationship between Silicon Valley and Europe’s brightest technology companies.

How fast things turn round. When Hewlett Packard’s $11 billion deal to purchase Autonomy hit the headlines little more than a year ago, it was hailed as a victory for the British tech sector. Sure, the price was high, and HP’s strategy unclear, but this was a solid company with some interesting technology — a big win for the local scene.

But the fall, when it came, was fast and relentless.

Less than a month after the deal was struck, its architect, HP boss Leo Apotheker, was on his way out, replaced by Meg Whitman. A few months later, Autonomy CEO Mike Lynch walked the plank too. And this week things exploded as Whitman announced an $8.8 billion writedown of the deal amid claims of fraud and misleading accounting that the SEC and FBI are investigating.

Whatever the realities of the deal — and Lynch vigorously denies Whitman’s claims — the damage has already been done. And it’s not just to Autonomy and HP, either.

Transatlantic tough times

Here’s one deep, abiding result of this debacle that shouldn’t be ignored: it’s likely to sour any future dealings between America’s technology giants and their European counterparts. What Silicon Valley CEO, faced with a potential acquisition of a British company, is not going to remember Meg Whitman’s claims? And what acquirer will not let the fear of being undone — just like Apotheker was — color their decisions?

For anyone skeptically minded, Autonomy underscores an unhappy trend for transatlantic technology deals. So many of the biggest European tech exits have ended in ignominy, or at the very least obscurity. MySQL was bought by Sun for $1 billion shortly before it went supernova and got snapped up by Oracle. In 2008, Microsoft spent $1.2 billion buying Norwegian search company Fast; a few months later the company was charged with fraud for violating accounting rules.

And then there’s Skype. Rightly paraded as one of the great European software success stories, it has a checkered history. Before it was bought by Microsoft for $8.5 billion, of course, it had been acquired and then jettisoned by eBay, which wrote its original bumper purchase price down by $1.4 billion.

Negative patterns are hard to shake, and in meeting rooms from San Jose up to San Francisco, you can bet anyone talking to a British entrepreneur about a possible buyout is going to think of Autonomy and this mess.

And yet, and yet. The story is so much more complex. After all, eBay’s troubled purchase of Skype happened under the leadership of… Meg Whitman. Sound familiar?

Meanwhile, the Autonomy buy wasn’t just Apotheker’s deal: it also took place on the watch of HP’s board — a hyper-connected, super-smart group of the Valley’s best and brightest. I’m not just talking about Whitman herself, but also Marc Andreessen, the man worshipped by many as the new leader of the pack. Then there’s Ray Lane of KPCB, once a bright star now having his role reduced, and Alcatel-Lucent’s Patricia Russo — who, as the head of a French-American firm, has particular experience of the European-American situation. Let’s hope pressure continues on those individuals to see why they got things so very wrong.

Truth is, attempting to draw lessons from HP-Autonomy doesn’t get you far. The British company may be tarnished by the accusations, but HP is a mess, switching from one disastrous strategy to another without understanding what is happening to it. And because it’s impossible to separate the misinformed decisions from the bad ones, coming to a broader conclusion about how fit European technology companies really are would be terrible. Each deal should be looked at on its own merits, not in some gigantic cultural context stuffed with lies, fraud and unproven accusations.

Yet we know human nature, and we know it is a fickle, arbitrary thing. What a shame for everyone.

Meg Whitman photo courtesy of Shutterstock user drserg

  1. wonder how creatively they managed to pull this off …$8.8B rightdown wow!

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  2. For a super smart group, they made a really dumb decision, ignoring all warning signs and even if everything was ok, according to most people the price they paid was way too high

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  3. Abdulla Mohamed Al Kooheji Sunday, November 25, 2012

    Very creative and smart move – brilliant!!

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  4. British tech companies should be angry? I don’t think that’s the problem. The problem is, what information is being used, and what decisions are being made? That has little to do with British vs. Estonian vs. Spanish.

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  5. It is definitely time to standardise financial reporting methods and definitions, the problem here is an issue of “lost in translation” the EU companies wrote “colour” but the American company heard “color”

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  6. “It is definitely time to standardise financial reporting methods and definitions.” Precisely, but neither stock exhanges nor regulators want to do that. Why?

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  7. So what is/was the problem?
    Poor due diligence?
    And after tax right off the net loss is what …. 50% less?

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  8. Philippe Jeudy Sunday, November 25, 2012

    The story of value creation fail after a company has been bought by another one is not a European vs Silicon Valley privilege. It’s a usual disease on the way business is conducted in this kind of operations, unfortunately. In Europe and everywhere else.

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  9. Salutations
    Transparency, not to dilute the system, fit for purpose – that subject to verification it would be checked off even as a preliminary on audits – what growth were they looking to achieve here – organic from……… diversification from…………… it is important that all the ingredients are appreciated – if you going to market then the market must be identified with what is the recipe you are delivering it’s interesting that tech taking over tech would not appreciate how best to develop synergy – that flavours are appreciated too for their uniqueness. I would go so far as to say and with the greatest respect this piece would lend itself to assessing further, to say, any limitations in the space of management does not necessarily apply in all – such an assertion would not be kind.
    Kind regards
    Caroline

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  10. Chandresh Adhiya Monday, November 26, 2012

    Bigger Companies fail to take correct decisions because of lack of controls on quality of decision making….Every small decision making is very important for success of company and there are no metrics today to capture the quality of decision making of individuals…..I am not saying that the decisions should never be taken on gut feel, however we need to know whose gut should we trust !
    No management practices today moves beyond tracking MIS without really tracking Quality of Decision Making at each layer of organization….
    Strategic decisions going wrong are visible to world, however there may be numerous decisions going wrong at Tactical and Operational levels as well….
    Big problem with strategic decisions is that we can come to know if the decision was right or wrong only after results….

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