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HP bought Autonomy ‘out of frustration and desperation’ despite red flags

HP Autonomy Acquisition

Dating someone out of frustration and desperation is never a good idea, and it’s apparently not a good idea when it comes to corporate mergers either. Reuters recently posted a mammoth report detailing HP’s (HPQ) disastrous acquisition of IT software firm Autonomy, and it doesn’t make former CEO Léo Apotheker look very good. Essentially, unnamed sources told Reuters that Apotheker was so desperate to transform HP from a hardware manufacturer into a software firm that he overlooked several warning signs when he agreed to buy Autonomy for $11.1 billion back in 2011.

“What happened is he talked to Autonomy and they got into a dialogue and he told the board that we have to do something,” one source with direct knowledge of the deal told Reuters. “It was out of frustration and desperation to a large degree.”

The red flags surrounding Autonomy were many. For instance, Reuters notes that “questions about Autonomy’s books had surfaced as early as 2009, when renowned short seller Jim Chanos identified Autonomy’s shares as a shorting opportunity based on concerns such as how reported margins of around 50 percent did not seem to translate proportionately into cash flow.” What’s more, “HP CFO Cathie Lesjak did raise questions about HP’s ability to pay such a high price and whether it could integrate Autonomy well” before the deal was finished, but apparently these concerns were brushed aside.

Needless to say, such accounts raise questions about whether Apotheker was really as “stunned” as he claimed to be when he found out that the company he acquired had been accused of massive accounting fraud that forced HP to write off $8.8 billion.

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