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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

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

  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

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

    Very creative and smart move – brilliant!!

  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.

  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”

  6. Snorri Gudmundsson Sunday, November 25, 2012

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

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

  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.

  9. Caroline Clarke Monday, November 26, 2012

    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

  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….

  11. I often wonder how these over educated people can make such poor decisions. I guess you can’t teach common sense.

  12. Yeah…you’re right….wait? What? No. I dont’ think it’s fair, or wise, to judge the entire history of tans-atlantic tech M&A based on the poor due diligence and decision making of a few CEO’s. There have been many successful and mutually beneficial deals that can be seen as financial coups for US investors. or ‘win-win’ deals.
    What I believe the real issue to be is that too much is expected of turnaround CEO’s – and under pressure the big bang, hail Mary acquisition can seem like a quick path to placate shareholders.

  13. The strategic value of a start-up is deeply routed in the collective vision of the start-up team… it is at best naive for M&A managers to ignore that fact… in valuing an acquisition, it is important that its value is considered in relation to the continuance of the team… of course, if the strategic intent is simply to derail competition then their “continuance” is not critical, but where M&A is regarded as a source of strategic growth then their “continuance” is crucial… Moreover, the Autonmoy, Skype cases prove that it due diligence should focus more on the “future” then the past… the past is easy to assess even for the “Big 5″ consultancies…. what is clearly evident is that the “Big 5″ have no clue how to value model or value market futures… theirs is as wild a guess as any… I believe that these cases highlight the need for the executives teams to do what they are paid to do… to develop, articulate and execute strategic intent…

  14. Eran Goldfinger Monday, November 26, 2012

    How many of these deals are PUSHED by third party advisory groups with huge commissions hanging on closing these deals? There must be an “it’s now or never” type ultimatum put to boards for so many to pay so much. Even so, 8 billion? Wow! Didn’t they learn from Microsoft’s purchase of Aquantive? A billion here, a billion there, pretty soon it starts to add up and you can’t just hide those numbers in the Suspense/Miscellaneous/Staff Amenities/Staff Refreshments accounts. Finally, the reasons I stopped buying HP include being unable to recoup losses in a damaged HP laptop even with expensive insurance, (exact opposite to Apple’s respect for customers) their printers take forever to boot up and they refuse to print in black if a COLOUR cartridge is running low but the black cartridge is brand new!

  15. I think this whole deal doesn’t pass the smell test. Having worked for an accountancy Giant like KPMG, I can tell you that the due diligence on this would have been extensive. I think Meg Whitman is a great businesswoman, and I have great respect for her on a number of levels, but I truly believe that she’s done this to lower expectations at HP in terms of her performance.

    I am going to forecast that, at the end of the day, this is just posturing on the part of HP and that no wrongdoing will be found. In the years after Enron, no big auditing firm is going to put their entire future on the line just to beef up the books of one of its clients. So, I doubt that HP’s claims are valid.

    As far as the context of this article – it is likely spot on. Deals across the pond are likely to be stymied as a result – but the real visionaries will still seek them out. Remember, Autonomy is a VERY TOP NOTCH PRODUCT and it is used by governments and businesses across the globe. Just because the juggernaut at HP failed to take advantage of it, doesn’t mean it was a bad deal.

  16. The whole world except HP’s management & board knew Autonomy was a bad buy a year ago.

  17. Like I’ve said before – Meg has been sleeping at the (finance) wheel since she started. While Autonomy and EDS were erupting in flames, she never bothered to start from square-one, and look at P&L, nor the way her company was being run. From the beginning of her tenure, uncontrolled EDS costs were completely overtaking revenue, and internal infighting and bad process were ruining the Autonomy business. Somehow though, she was not interested. Like her other cohorts (including disgraced former Svcs Exec Visentin – among many others) this ‘Mgmt Team envisioned their role’ was to jump on the many HP Corp Jets (plural), and travel to exotic locations giving meanlingless keynotes on the greatness of HP crap. They also needed ‘ to meet with the rank/file’ – aka: more Corp boondoggles (see Visentin’s full-time interest in travelling on HPs dime to Formula One venues around the globe). This misbehaving went all the way down to the mid-mgmt and line-mgmt ranks – of course costing shareholder’s additional millions. From the outset of Whitman’s reign, it appears no one has ever seemed to be interested in gaining control of escalating employee costs, eliminating the anarchy in the divisions, nor understanding HPs basic core finances. HP Mgmt is the reason EDS and Autonomy disintegrated.

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