The maker of jolly expensive printer ink, HP, is facing a $1 billion lawsuit from shareholders over its Autonomy acquisition.
Shareholders are rushing to court to claim that the HP board ignored evidence on the ‘vastly overvalued’ buy.
It is possible that the case could have huge implications for HP.
HP chief executive Meg Whitman was at the time a member of the board that approved the Autonomy purchase. Her predecessor, Léo Apotheker, the company’s former chairman Ray Lane and Autonomy founder Mike Lynch are among eight defendants named in the class action suit, filed at California’s San Francisco district court.
According to court documents, HP tried to pull out of its $11bn takeover of British software firm Autonomy before the deal closed.
Whitman and Lane ignored damaging evidence from whistleblowers and allegedly hid their full concerns about the Autonomy deal.
The court documents, seen by the Guardian, show HP’s board of directors were too tired from infighting to effectively oversee the acquisition of Autonomy.
If you believe the shareholders, Apotheker was egged on by self-interested auditors, Wall Street bankers and other investment advisers who wanted to collect their fees for the deal.
Lynch has been accused of exaggerating his company’s performance to investors and “hoping to cash out of Autonomy before it collapsed under the weight of its own fraud”.
Before the sale went through, HP realised that this was the case and Whitman, who had been a member of the board that approved the purchase, had replaced Apotheker as chief executive.
Lane asked HP’s financial advisers, Barclays and Perella Weinberg, to check whether his company could back out of the deal.
Since the board had been aware of accusations that Autonomy’s management were exaggerating their company’s performance before the offer was made, the UK Takeover Panel would reject any plea by HP to walk away, Lane was reportedly told.
HP decided that it was better to clean up the HP/Autonomy debacle internally than face embarrassing failed foreign litigation with Autonomy.
HP was only forced into a full disclosure in May 2012, when a senior Autonomy executive blew the whistle on serious accounting improprieties with HP’s top lawyer John Schultz, the shareholders claim.
The court heard that HP had four whistleblowers who warned them of what was happening. Three of whom came forward before the deal was completed.
There was UK financial analyst Paul Morland who wrote to HP’s investor relations department in September 2011 to “tell them they were making a big mistake”. Another whistleblower was a former Autonomy finance executive who told the British company’s auditor Deloitte of “improper accounting”, and then there was an author of a widely circulated email which questioned Autonomy’s claims about the popularity of its flagship software.
The suit is led by the Dutch pension fund PGGM Vermogensbeheer, which last year was part of a group of investors that sued Bank of America for $2.4 billion over its purchase of Merrill Lynch, and believes it lost $35 million on its HP investments.