While the news broke surrounding Hewlett Packard’s sudden write-down of its November 2011 acquisition of Autonomy nearly two weeks ago, developments continue to plague H-P as it settles this mammoth blunder.
On November 20th, H-P’s stock went tumbling 12% as the company announced a massive $8.8B write-down, primarily tied to its acquisition of Autonomy. H-P directly accused Autonomy of "serious accounting improprieties, disclosure failures and outright misrepresentations". The Founder of Autonomy, Michael Lynch, has openly rejected these accusations, and has gone as far as sending an open letter to H-P’s board asking for an explanation of what these supposed “accounting improprieties” are.
Unfortunately, the write-down of Autonomy is only the most recent in a slieu of problems that have been plaguing H-P as the stock has fallen over 50% this year, amid management turnover, decreased product demand, and growing debt.
While it might seem permissible for a company to have large write-downs in the case of accounting misrepresentations, too many flags have been thrown to look at this as a one-sided mistake. The market was openly pessimistic about H-P’s acquisition from the beginning. From the time H-P announced the Autonomy acquisition to the time the deal was completed, H-P’s market capitalization dropped $15B from $58.5B to $43.5B. Additionally, H-P’s share price drop of 12% on the $8.8B write-down announcement represented a $3B drop in the company’s market capitalization, implying that the market had already priced in a $5.5B loss.
One of the most appalling details about the Autonomy write-down is the uncanny resemblance of the acquisition write-down to the original acquisition premium. H-P originally paid a $5.2B acquisition premium on Autonomy back in 2011. Now it has made a $5B write-down on that original acquisition ($3.8B of the original $8.8B write-down was not due to Autonomy).
A year after H-P’s acquisition, the company has written down nearly the entirety of its original acquisition premium. Even if Autonomy is guilty of the accounting misrepresentation it is accused of, can anyone really find H-P free of blame?