Autonomy founder Lynch denies HP allegations

The former head of software firm Autonomy has denied claims made by new owner Hewlett-Packard that accounting problems before it was sold had caused HP to write off a whopping $8.8 billion (£5.5 billion) from the value of the company.

Irish-born Mike Lynch founded the Cambridge-based Autonomy in 1996 and sold it to HP last year for $10.2 billion (£6.4 billion). He blamed the mismanagement by the firm's new owners for its drastic decline in value.

Yesterday, HP CEO Meg Whitman revealed in a conference call with analysts that "serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation" had led to the colossal loss. Whitman claims a senior manager disclosed the dishonest practices after Lynch left the company in May this year.

An internal HP probe was followed by a third party investigation, which confirmed the accusations that Autonomy had misrepresented both its history and its business prospects in the lead-up to the acquisition. HP has now filed a complaint with UK law enforcement and with the US Securities and Exchange Commission which could end in a civil suit to recoup some of HP's losses. Lynch, for instance, made $800 million (£502 million) off the deal.

In an interview with Reuters, Lynch denied any wrongdoing saying he was not even notified by HP about the allegation before it was made public, nor had he been contacted by any authorities.

"We are shocked, this is a big surprise, it's completely and utterly wrong and we reject it completely. We have not heard anything from HP, they have not been in touch and we don't know what they are on about," he said in a phone interview from a London office where he was meeting with other former Autonomy executives.

"I fear that this is a bit of a distraction on the day when they produce their worse set of results in the 70-year history of the company," he added.

Lynch went on to say that the size of the writedown suggested it was impossible that HP could have missed problems with the accounts during its examination before the acquisition took place.

Lynch joined HP as part of the acquisition with high hopes for him to build HP's software division after the company began to focus more on its soft portfolio, where profit margins are considerably higher than those in the consumer hardware markets.

However his relationship with CEO Meg Whitman soured and he left HP earlier this year. He insisted the real problem was poor management of Autonomy and other acquisitions by HP. He said that Autonomy became a victim of HP "infighting" that resulted in the loss of its staff and the top management team.

"They've managed the assets since that point and the results have gone down and down. It's really sad for us at Autonomy to have seen the company so poorly managed over the last year, to see so much value destroyed," he said.

HP bought the British firm, which specialises in enterprise software technology like database search and processing, in a cash deal worth 58 per cent more than the company's share price at the time. The multi-billion dollar deal was the largest IT takeover in European history and the world's second-largest for a software acquisition.

However, last year, when news of the acquisition broke, many financial analysts questioned the deal and its sky-high valuation of Autonomy.

"We believe HP shareholders should be worried. Even before you consider the very high price, what are they going to think when they realize that margins have been contracting, profits are growing in single digits and for some reason those profits aren't converting into as much cash as they should?" said analyst Paul Morland at the time of the HP bid in August 2011.

Unsurprisingly, the news has sent HP's already poorly performing stock plummeting further, down by 11 per cent to $11.70 (£7.3) per share. The firm will also have to swallow yet another huge quarterly loss, this time in the amount of $6.9 billion (£4.3 billion).

Image: Telegraph