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HP faces lawsuit over Autonomy deal

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8th May 2013
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Hewlett Packard (HP) is facing a US$1bn lawsuit from shareholders over the “vastly overvalued” acquisition of British software firm Autonomy.

According to claims brought against the multinational, HP tried to pull out of its US$11bn takeover of Autonomy before the deal closed. Board members face accusations that they were made aware of countless “red flags” about Autonomy and of ignoring damaging evidence.

The class action suit was filed at the San Francisco District Court and accuses eight defendants – including HP chief executive Meg Whitman, former CEO Léo Apotheker, former chairman Ray Lane and Autonomy founder Mike Lynch – of conducting “cursory due diligence on a polluted and vastly overvalued asset”. It claims directors “breached their fiduciary duty of loyalty and good faith” by failing to conduct “proper due diligence”.

At the time Whitman was a member of the board that approved the Autonomy deal and is accused of knowing or disregarding the many red flags, including opposition from HP CFO Catherine Lesjak.

Whitman and Lane are also accused of ignoring evidence from whistle-blowers and hiding their full concerns about the deal.

According to the claims they employed “devices, schemes and artifices to defraud” shareholders into buying the stock, before eventually admitting HP had overpaid in November 2012.

At the same time HP took an US$8.8bn write-down against the US$11.1bn it had paid for the company it bought from Lynch in 2011.

HP then accused its acquired UK subsidiary of “accounting improprieties, disclosure failures and misrepresentations”; however the Autonomy founder has since denied any financial impropriety.

Big Four accountants KPMG and Deloitte were also dragged into the action by an HP shareholder for their role in HP's purchase.

Whitman said that during due diligence, KPMG, which had been hired to review the work of Deloitte as auditor, did not uncover any problems. However, the lawsuit alleges that KPMG denied being hired to audit Deloitte and said it merely did “a limited set of non-audit related services”.

According to the court papers, Apotheker was egged on by “self-interested auditors, Wall Street bankers and other investment advisers who facilitated HP's severely reckless pursuit of Autonomy in exchange for nearly US$100m in fees”

Lane is also alleged to have asked HP's financial advisers, Barclays and Perella Weinberg, to check whether HP could back out of the deal.

The new lawsuit is led by Dutch pension fund PGGM Vermogensbeheer and is being brought by Ramzi Abadou, a partner at law firm Kessler Topaz Meltzer & Check.

A hearing is expected to follow later this year.

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