Judgment for HP in its $5bn Autonomy claim

The long-running Hewlett Packard v Autonomy case looks set to end soon with a recent High Court ruling. Well, until the appeal.

Lady justice

In 2011, HP’s turnover was $130 billion but it was focused on hardware with low margins. It wanted to undergo a “transformational change” to high-margin software. Conversely, the Autonomy group was highly profitable. It generated annual revenue of about $900 million and held cash reserves of $1.1 billion by the end of 2010. Its customers included blue-chip companies in every sector. In 2011, it was the largest British software company. Autonomy’s core product was “Intelligent Data Operating Layer”, or IDOL, whose focus was the analysis of unstructured data. The CEO of HP described this ability to handle unstructured data as “almost magical”. 

In 2011/12 HP acquired Autonomy for approximately $11.1 billion. The deal quickly turned sour. The markets reacted badly and the CEO of HP was removed. HP brought a claim against the sellers who said it was motivated by buyer’s remorse.

HP brought three claims:

  1. $4.55 billion against Autonomy for artificially and fraudulently inflating its growth, revenues and profits. In turn, HP claimed this from the sellers, Dr Lynch, who was the director and driving force and leading figure within Autonomy, and Mr Hussain, its CFO. 
  2. $420 million against Dr Lynch and Mr Hussain personally for false representations.
  3. $76.1 million for losses from transactions HP claim Dr Lynch and Mr Hussain caused them to enter into in breach of their fiduciary duties or employment contracts.

The judge has found in favour of HP but has yet to specify the amount he will award. In fact, he has yet to publish his full judgment and has warned it will be of considerable length.  As my colleague Jessica Verrall pointed out, this was a 93-day trial. Even the judge acknowledges it may rank among the longest and most complex in English legal history. See Jessica’s post for more analysis on the Financial Services and Markets Act 2000 angle.

In addition to action in the UK courts, there have been at least two sets of criminal proceedings in California with the imprisonment of Mr Hussain for wire fraud and the indictment of Dr Lynch in respect of which the US authorities are now seeking to extradite him to face trial.

What lessons can we learn?

  • When you are selling, don’t fraudulently inflate your revenues. Naturally.
  • A limited liability company doesn’t shield you from personal liability if you are in breach of your personal duties.
  • When buying, undertake proper due diligence. Get the accountants to pore over the accounts and the lawyers to review the legal issues. That’s literally their job. 
  • Remember, prevention is better – and cheaper – than cure. Money spent upfront wisely on proper advice, can save lots more being wasted later.

If you need advice, contact me f.jennings@teacherstern.com or +44 (0) 20 7611 2338.

This article first appeared on the Teacher Stern website.

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