It was a little over two years ago that HP hired former SAP chief Leo Apotheker to be the Palo Alto tech giant's new CEO. Apotheker came from a short tenure as CEO of German enterprise software firm SAP, from which he'd been forced out after poor performance during an admittedly poor economic environment. At the time, we expressed our misgivings over the pick; Apotheker was an enterprise software guy through-and-through, having spent twenty years at SAP (which is small in comparison to HP). Sure, enterprise services were a profitable and growing portion of the HP business, but HP also still had a massive and dominating consumer hardware enterprise and had just months prior completed its acquisition of Palm to further expand that consumer hardware portfolio.
We all know what happened next: within a year HP launched and then cancelled a new generation of webOS hardware, announced a plan to split HP into separate consumer and enterprise companies, and purchased UK-based enterprise software company Autonomy for $10.2 billion. A month later, Apotheker's embattled term as HP CEO came to an unceremonious end as he was dumped in favor of former Ebay CEO Meg Whitman, who has since spent the past year struggling to clean up the mess Apotheker created.
Today, in conjunction with announcing their fiscal year 2012 results, HP declared an $8.8 billion write-down loss related to the purchase of Autonomy. Specifically, the charge is related to the revelation that "members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company" before HP's purchase. In other words, they lied about how much Autonomy was worth and how much money it could make for HP, leading to HP overpaying by billions of dollars for the company (The purchase price at the time was more than 80% higher than Autonomy's stock price; when HP bought Palm they paid a mere 23% premium over the trading price).
After writing down $3.3 billion a year ago after Apotheker's cancellation of webOS hardware and $8 billion more a few months ago related to a failure to actualize the value of their 2008 purchase of enterprise services company EDS, the last thing HP needed was another multi-billion write-down. But here we are, bringing the one-year write-down total to over $20 billion. Without the EDS and Autonomy write-downs, HP actually would have only suffered a loss of $600 million for the year, which while not great, looks downright rosy given the situation HP found itself in a year ago and the $12.7 billion paper loss now on the books.
Understandably, HP's not happy about this debacle, and make no mistake, this is a debacle. HP says that they have contacted both the US SEC Enforcement Division and the UK Serious Fraud Office for "civil and criminal investigation". And not wanting to leave it up to the feds, HP's also "preparing to seek redress against various parties in the appropriate civil courts to recoup what it can for its shareholders." In other words, "We'll see you in court."
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