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Justice Department Opens Investigation into HP Acquisition of Autonomy

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Palo Alto, Calif. (December 28, 2012)

By Adam Satariano

Bloomberg

(Bloomberg) The U.S. Justice Department opened an investigation relating to Autonomy Corp. after Hewlett- Packard Co. accused the software company of misrepresenting its performance before being bought last year.

Justice Department representatives informed the company on Nov. 21 of the probe, Hewlett-Packard said Thursday in its annual 10-K regulatory filing. The computer maker booked an $8.8 billion writedown related to Autonomy last month after finding that some revenue had been recorded prematurely or improperly.

Hewlett-Packard is cooperating with authorities while CEO Meg Whitman works to turn around the company after years of botched deals, management tumult and strategic missteps. Palo Alto, Calif.-based Hewlett-Packard also said it’s providing information to the Serious Fraud Office in the U.K. and the U.S. Securities and Exchange Commission.

Former Autonomy CEO Mike Lynch, who left Hewlett-Packard in May and refutes the company’s allegations, struck a $10.3 billion deal last year with Whitman’s predecessor, Leo Apotheker, to sell the company he co-founded.

Yesterday’s filing didn’t include any additional details behind Hewlett-Packard’s claims of accounting errors, which made up $5 billion of the writedown.

Michael Thacker, a spokesman for Hewlett-Packard, declined to comment yesterday beyond details in the filing.

Lynch Response
“It is extremely disappointing that HP has again failed to provide a detailed calculation of its $5 billion writedown of Autonomy, or publish any explanation of the serious allegations it has made against the former management team, in its annual report filing,” Lynch wrote in a statement yesterday.

“We will co-operate with any investigation and look forward to the opportunity to explain our position,” Lynch wrote. “We continue to reject these allegations in the strongest possible terms.”

Hewlett-Packard shares fell 2.6 percent to $13.68 at 10:10 a.m. in New York. The stock had declined 45 percent this year through yesterday.

The Federal Bureau of Investigation is looking into Hewlett-Packard’s allegations of accounting improprieties at Autonomy, a person familiar with the matter said on Nov. 21. The company brought its claims about Autonomy to the SEC, which asked the FBI for assistance, said the person, who asked not to be identified because the matter wasn’t public.

The FBI can’t confirm or deny any investigation, said Julie Sohn, a spokeswoman for the agency in San Francisco.

Hewlett-Packard also said in the filing that it’s facing several shareholder lawsuits related to the purchase of Autonomy.

Software Push
Apotheker, who was ousted as CEO in September 2011, viewed Autonomy as Hewlett-Packard’s ticket into the high-margin software market, which constituted less than 3 percent of Hewlett-Packard’s sales at the time. Autonomy’s software is used to organize the reams of data flooding corporate computer networks.

Whitman, who was on the board at the time and approved the acquisition, has tried to distance herself and other directors from the decision, telling analysts on a Nov. 20 conference call that the blame lies with Apotheker and former mergers and acquisitions head Shane Robison, who was also the company’s chief technology officer and departed last year.

—With assistance from Reed Stevenson and Joel Rosenblatt in San Francisco. Editors: Reed Stevenson, Jennifer Sondag

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