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Hewlett-Packard's Explanation Just Makes No Sense

Here's the problem with Hewlett- Packard Co.'s explanation today for why it took an $8.8 billion writedown related to its purchase of Autonomy Corp.: The numbers don't make sense.  —  HP said “more than $5 billion” of the writedown …

Bloomberg Jonathan Weil

Context & Ripple Effects

The charge lands on the same day as HP's fiscal Q4 results: an $8.8 billion writedown against the roughly $11 billion Autonomy acquisition, disclosed alongside a quarter where earnings of $1.16 a share beat consensus even as sales declined. HP attributes more than $5 billion of the writedown to accounting irregularities and accuses Autonomy's leadership of misrepresenting performance during deal talks — a fraud allegation made barely a year after the deal closed.

The story traveled fast and wide — the Wall Street Journal, GigaOM, AllThingsD, Business Insider and PC Magazine all picked it up within hours — and the reaction split along predictable lines. Autonomy founder Mike Lynch rejected the charges and pointed back at HP's own management, while Business Insider resurfaced reports that HP's CFO had tried to stop the deal, and former CEO Leo Apotheker defended the due diligence as meticulous. Bloomberg's own analysis argues the arithmetic HP offered doesn't reconcile, which is what keeps this from being a clean fraud narrative.

First-order effects

  • HP shareholders absorb an $8.8 billion charge that erases most of the Autonomy purchase price, with more than $5 billion attributed to alleged accounting misstatements rather than ordinary impairment.
  • Autonomy's leadership, above all Mike Lynch, is publicly accused of misrepresenting results during negotiations — and immediately rejects the accusation, setting up a direct credibility fight between buyer and target.

Second-order effects

  • HP has called for a fraud investigation into Autonomy's accounting, pulling regulators and Autonomy's auditors into a dispute that will now be litigated in public rather than settled in a footnote.
  • Every board and CFO who priced a revenue-recognition-heavy software target by its reported financials faces pressure to re-examine diligence standards — the CFO-tried-to-stop-it reporting makes internal governance part of the story, not just the seller's books.

Third-order effects

  • If the pattern holds, large tech acquisitions stop being judged mainly on strategic fit and start being judged on forensic accounting, with fraud claims becoming the standard post-mortem when deals collapse in value.
  • The dispute also tests how much liability sits with sellers versus acquirers' own diligence: if HP's 'meticulous' process missed what it now alleges, premium-software M&A pricing loses its main justification.

The trend: Mega-scale software acquisitions are entering a phase where post-deal writeoffs get reframed as fraud disputes, shifting the argument from strategy failure to accounting integrity and dragging auditors and regulators into M&A fallout.

Related: H-P Claims Fraud at Autonomy · HP Beats Street Amid Sales Declines, Takes $8.8 Billion Charge · Autonomy Corp. · HP

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