HP's Autonomy deal highlights pattern of bad ideas

Nov 21 2012, 11:32 IST
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SummaryInvestors are losing hope that HP will rebound because the company has made so many questionable decisions in the five years.

Hewlett-Packard's $9.7 billion acquisition of Autonomy seemed like a bad idea long before Tuesday's allegations of an accounting scandal made clear it was a deal that should never have happened.

It's the latest in a cavalcade of costly blunders at HP. The Silicon Valley pioneer has squandered billions of dollars on ill-advised acquisitions, compounding the challenges it already faces as it scrambles to adjust to a world that is shifting away from PCs to smartphones and tablets.

On Tuesday, HP took an $8.8 billion write-down for the Autonomy acquisition. Hewlett-Packard Co. CEO Meg Whitman alleged that executives at Autonomy used various accounting tricks to make the British software company appear more profitable.

The Autonomy deal may amplify the pressure on HP to reshuffle its board of directors, which already had been overhauled after a series of previous embarrassments. The debacles, dating back to 2006, include prying into the personal phone records of reporters covering the company to its widely criticized hiring of Leo Apotheker as CEO after the company's previous leader, Mark Hurd, resigned amid questions about his relationship with a female contractor.

Although HP says it was duped into paying too much for Autonomy under the since-fired Apotheker, the deal ultimately was approved by 10 of its current 11 directors, including Whitman, who served on the board for nine months before being appointed as CEO in September 2011

Only shareholder activist Ralph Whitworth wasn't on the board when HP authorized Apotheker to buy Autonomy in August 2011. Just five weeks after the deal was announced, HP's directors fired Apotheker, a move some analysts trace to the company's almost immediate remorse over the Autonomy acquisition.

But Apotheker's ouster may not be enough to placate shareholders who are seething with renewed anger over the deal. The allegation that Autonomy had been "willfully'' deceptive leading up to HP's purchase raises the specter of a criminal investigation. It also opens a torrent of potentially distracting class-action lawsuits on behalf of shareholders alleging HP's board was negligent.

“When I talk to investors, that is what they are concerned about: the credibility of the board,'' said Sterne Agee analyst Shaw Wu. "There already has been a lot of turmoil at this company, but maybe they still need more change.'' Wu said he isn't even sure Whitman's job as CEO is safe because of her presence on the board when the Autonomy deal was approved.

In a research note, Topeka Capital Markets analyst

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