HP seeks fraud probe at British firm bought in 2011

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Hewlett-Packard called on Tuesday for a probe into ‘willful’ financial misstatements by Autonomy, a British software firm it bought for over $10 billion, which HP now says was overvalued.

HP's share price tumbled 14 per cent to $11.43 at the opening on Wall Street, as the new problems weighed on the US computer giant already struggling with a changing technology landscape.

The California firm said accounting problems at Autonomy forced it to take a massive writedown, and that both US and British authorities should investigate the irregularities.

"HP has referred this matter to the US Securities and Exchange Commission's Enforcement Division and the UK's Serious Fraud Office for civil and criminal investigation," HP said in a statement as it announced a big hit to earnings.

"In addition, HP is preparing to seek redress against various parties in the appropriate civil courts to recoup what it can for its shareholders. The company intends to aggressively pursue this matter in the months to come."

HP announced the news as it reported a $6.9 billion quarterly loss. The company was pushed into the red by the $8.8 billion writedown, mostly due to the newly uncovered valuation issues at the British firm.

Under accounting rules, firms must take a charge against earnings when they revalue business units, even if their cash position is unchanged.

"HP is extremely disappointed to find that some former members of Autonomy's management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy's acquisition by HP," said the US company.
"These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management's ability to fairly value Autonomy at the time of the deal."

California-based HP said it launched an internal investigation "after a senior member of Autonomy's leadership team came forward... alleging that there had been a series of questionable accounting and business practices at Autonomy prior to the acquisition by HP."

HP launched its own investigation including a forensic review by PricewaterhouseCoopers.
"As a result of that investigation, HP now believes that Autonomy was substantially overvalued at the time of its acquisition due to the misstatement of Autonomy's financial performance, including its revenue, core growth rate and gross margins, and the misrepresentation of its business mix," the statement said.

The US computer giant said the results closed the fiscal year with a $12.65 billion loss.
The news added to the woes at HP, which remains one of the world's biggest PC makers but has been struggling to keep pace with a shift to mobile computing and tablets.

"We do not expect a near-term resolution for this matter, which likely adds another layer of uncertainty" at HP, said Bank of America analyst Scott Craig.

Former HP chief Leo Apotheker announced the Autonomy acquisition in August 2011 as part of a strategic shift by the computer maker into software and cloud computing, and also floated the idea of a spinoff of its PC unit.

But Apotheker later was forced out and HP's replacement as chief executive, Meg Whitman, reversed course on the PC business.
HP announced in September that its job cuts under a major restructuring program ordered by Whitman will total some 29,000, or 2,000 more than previously estimated.

In the latest quarter, excluding the one-time costs, HP reported a profit of $1.16 per share. But revenues fell seven percent to a worse-than-expected $30 billion in the quarter and were down five per cent to $120.4 billion for the year.

Whitman said she remains committed to a "multiyear journey to turn HP around."

"We're starting to see progress in key areas, such as new product releases and customer wins," she said.