back to article Autonomy integration was a 'sh!t show', HP director tells court

A former HP senior director told London's High Court yesterday that the IT giant's post-buyout integration of British software firm Autonomy was referred to internally as a "shit show". Manish Sarin, who joined HP in 2010, testified on Wednesday that he'd used the phrase on multiple occasions in relation to the assimilation of …

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  1. Anonymous Coward
    Anonymous Coward

    HP people I have known

    One observation I will make is that non-engineer HP people I have known have all had a tendency to express themselves in somewhat cloudy and indefinite language - as if hoping that anything they say won't come back to bite them later.

    Business-speak isn't perhaps intended to be understood by outsiders, but I feel some of it isn't perhaps intended to be understood too clearly by insiders either.

    This becomes a problem, of course, when anything remotely contentious happens and it turns out everybody was out watching tea leaves or counting yarrow stalks (and yes, one of those HP people did have a "dreamcatcher" in the office.)

    1. Commswonk Silver badge

      Re: HP people I have known

      One observation I will make is that non-engineer HP people I have known have all had a tendency to express themselves in somewhat cloudy and indefinite language - as if hoping that anything they say won't come back to bite them later.

      And / or: - as if hoping that anything they say won't reveal that they haven't a bloody clue what they are talking about in the first place.

    2. Pascal Monett Silver badge

      Re: HP people I have known

      He said shit show. That is something anyone can understand.

      Obviously, he hasn't been at HP long enough to be impregnated by the sickness.

    3. Anonymous Coward
      Holmes

      Re: HP people I have known

      Its the ones who have dreamcatchers hanging from their rear view mirror that scare the shit out of me.

  2. Kevin Johnston Silver badge

    I'm confused

    I have been trying to follow all this but the way this is written these seem to be HP people saying that nobody bothered to check anything, yet they claim Autonomy people sold them a false position....

    Did the lawyers not discuss with the witnesses whose side they were on? I know lawyers are just there to make money but surely they should be looking to surrender before the hole is dug any deeper?

    1. Pascal Monett Silver badge

      Re: I'm confused

      "they claim Autonomy people sold them a false position"

      Well, HP is guilty of buying a house based on nice pictures without ever bothering to go set foot in said house before writing the check.

      As I've said before, if you or I did that, the judge would throw us out in an instant, but because it's HP, everyone is wasting time on this.

      You got conned because you didn't do your job. Own it and move on.

      1. kain preacher

        Re: I'm confused

        Was it really a con. If buying a house and the pictures are a decade old and have no description who's fault is that. I mean this is like buying a house site on seen and the neighbors are laughing

    2. Anonymous Coward
      Anonymous Coward

      Re: I'm confused

      It's all acutely embarrassing for HP but ultimately it comes down to whether the judge is persuaded that Autonomy committed fraud or not.

      If there was fraud then it's a bit like a conman conning someone out of their life savings: being conned doesn't mean you deserve to lose your money.

      1. Anonymous Coward
        Anonymous Coward

        Re: I'm confused

        We call someone a con-man when he or she finds a vulnerable, easily led, gullible person and persuades them to do something against their interests. Nigerian fraudsters didn't usually succeed against anybody with a gramme of financial awareness, but of course they weren't going for them; they even sent out emails with bad spelling to weed out people who might have an education. They were con-men.

        When someone finds a large, rich corporation loaded with accountants, economists, lawyers, salespeople, marketing executives, engineers and allegedly top-rank C-suit executives, and they fall over themselves to buy what he's selling - it is much more difficult to make the case.

        Admittedly there are apparently very bright and well informed people who are taken in by fraudsters. Madoff is an example. Surprisingly intelligent people fell for an obvious scam - obvious to anyone who realised that you cannot buck the stock market and property market at a high rate of return with any reliability. One assumes that they were blinded by greed. This, of course, could not apply to HP. Could it?

        1. JLV

          Re: I'm confused

          No. The illegality is whether or not you committed fraud. Not whether or not the person you conned should have known better. Or was greedy.

          Yes, HP looks like a bunch of inbred lobotomized Chihuahuas suffering from Alzheimers and heavy lead contamination. And it is fair for the defence at trial to see whether or not they ran the business into the ground rather than overpaying. And are now trying to recoup post-acquisition mismanagement by claiming it was a (fraudulous) dud to start with.

          Maybe another trial should be held for whatever external auditors signed off a $10B valuation.

          Maybe Leo needs to clawed back every penny he was ever paid by HP for gross incompetence.

          But _this_ trial is about whether the accounting was deliberately misrepresented by Autonomy’s senior management . Not whether it was misunderstood.

          The victim may be stupid, but let’s clear or blame the alleged perpetrator.

          1. J. Cook Silver badge
            Coffee/keyboard

            Re: I'm confused

            "Yes, HP looks like a bunch of inbred lobotomized Chihuahuas suffering from Alzheimers and heavy lead contamination."

            You sir, owe me a new keyboard.

            1. Fatman

              Re: You sir, owe me a new keyboard.

              No, he owes me a new laptop.

              I just ruined mine.

              1. DontFeedTheTrolls
                Coat

                Re: You sir, owe me a new keyboard.

                HP by any chance?

                1. Anonymous Coward
                  Anonymous Coward

                  Re: You sir, owe me a new keyboard.

                  No. Daddies.

          2. This post has been deleted by its author

            1. Anonymous Coward
              Anonymous Coward

              Re: I'm confused

              I managed the MIS integration workstream off a huge retail merger. We were constantly getting a panning because the financial results coming out of the warehouse disagreed with the purchased companies systems. I ended up calling a meeting of both senior accountancy teams where it was discovered they used completely different calculations to work out the cost of marketing, cost of sales and how they defined profit.

              Needless to say that this could have a huge impact on the reported profitability of the company. How you express these things can vary greatly depending on whether you are trying to sell the company, minimise tax payments or keep your head down to avoid a predatory 'turn around company' coming in loading the company with debt and driving it into he ground.

          3. Anonymous Coward
            Anonymous Coward

            Re: I'm confused

            Reposted because I managed to get a sentence completely backwards.

            I'm not being rude, but have you ever been involved in an acquisition?

            I have, and the best comment I ever heard was from one of our accountants who said "A company is worth what you are prepared to pay for it."

            At the end of the day, if there is a memo saying "Tell lies to make this look good", that's fraud. Without that it's likely to be SOP. The vendor wants to look as good as possible. Inevitably they will overcook their claims. That's why you should do your homework first. There are **always** buried bodies, the thing is to find out what and where.

            And the value of the company varies according to the buyer, because although "synergies" is a buzzword, it does actually mean something.

            tl;dr it's fraud when there's a cover up of the truth, but when it's spin, that's business.

          4. Anonymous Coward
            Anonymous Coward

            Re: I'm confused

            Yes, HP looks like a bunch of inbred lobotomized Chihuahuas suffering from Alzheimers and heavy lead contamination.

            Ah, you're not one for understatements then.

            :)

          5. Steve K Silver badge

            Re: I'm confused

            whatever external auditors signed off a $10B valuation.

            No one external signed off any valuation - the due diligence from KPMG was never completed either.

            This is entirely down to HP.....

          6. This post has been deleted by its author

        2. RegGuy1 Silver badge

          Re: I'm confused

          Ah, Madoff; I seem to remember he made off with quite a few people's money.

      2. Doctor Syntax Silver badge

        Re: I'm confused

        "being conned doesn't mean you deserve to lose your money."

        AIUI HP were bidding (or at least Leo was bidding) against Larry. When you outbid another would-be buyer you set the price. It looks as if the price he they decided to bid was based on the value that they hoped to gain by integrating into their product line rather than on past sales.

        1. Anonymous Coward
          Anonymous Coward

          Re: I'm confused

          The irony here is that Oracle had already walked away laughing from buying Autonomy at half the price. HP were frantically outbidding... nobody.

          And yes to your second point: as is so often the case of acquisitions-gone-bad, the "value" was predicated on mythical leverage rather than the standalone value of Autonomy.

  3. BebopWeBop Silver badge
    Facepalm

    It gets better and better (I know I have said it before) - I bet HP Execs are ruing the day they decided to cover their arses/embarrassment by starting the whole thing up. I have no legal expertise but as an IT bod I suspect the chances of them winning the case and Lynch finding his way into the maws of US 'justice' are rescinding. I'll bet the former CFO wishes he had stated well away from that side of the pond, and those planning to sue for the losses to holdings they once had are licking their lips.

    1. Anonymous Coward
      Anonymous Coward

      s/recinding/receding/

    2. david 12

      I thought the case was poor until I saw the due-diligence report mentioned in the article the other day. The due-diligence report says something like "This is what we were told. We have no independent evidence. Depending on what you are told is normal for this kind of takeover in the UK". If the Autonomy people were telling lies, as a reading of that due-diligence report suggests, then they are and should be in trouble.

      I don't do takeovers. I don't know if it was reasonable for HP to believe Autonomy, backed only by their faith in the criminal law system for protection. But it's over now, and if it was criminal, then the stupidity of HP is immaterial.

      1. NeilPost Silver badge

        The key to what you say is ‘due diligence’.

        Looks like HP did not really do any.

        Perhaps Meg and Leo would buy some of Paltrow’s fanny-eggs and other whacked out snake-oil.

        Now there is fraud......

    3. Anonymous Coward
      Anonymous Coward

      Meg: "And if I don't get my way, I will thcream, and thrcream and ....thtamp my foot ... and thcream ...."

      1. Nick Kew
        Headmaster

        To be pedantic, don't you mean Leo?

        When a child does it, that's normal. When business executives do it, they lose money. When politicians and journos do it, we get brexit.

        Upvote for the Crompton reference!

        1. Anonymous Coward
          Anonymous Coward

          Meg was on the board and signed it off when Mad Leo went bonkers for Autonomy then she doubled down on that by launching all the litigation. She is as responsible as Leo - more so in fact as she had a chance to cut their losses. Possibly even more culpable as the board has the responsibility to keep the CEO in check.

          Of course her persuing may have had something to do with the shareholder litigation against the autonomy bid.

          I do wonder if US corporate governance would be improved by making board members personally liable in some way for their sign off of stupid decisions. Im not sure Autonomy would have happened with a Board with a UK or German Corporate structure.

  4. Aristotles slow and dimwitted horse Silver badge

    It's just gets worse and worse...

    This just appears to get worse and worse and funnier and more tragic for HP every day. It does however all seem one sided at present so I'm assuming HPs lawyers will also get to have a go at cross examination etc?

    I can't wait to see how they try to dig themselves out of this.

    1. Arthur the cat Silver badge

      Re: It's just gets worse and worse...

      I can't wait to see how they try to dig themselves out of this.

      As they're definitely in a hole, they'll probably dig faster.

      1. Anonymous Coward
        Anonymous Coward

        Re: It's just gets worse and worse...

        Digging faster has become the new "HP Way", hasn't it?

    2. Nick Kew
      Headmaster

      Re: It's just gets worse and worse...

      The onesidedness is because these are HP's witnesses. So HP's lawyer asks them friendly questions, which will basically amount to confirming a written statement they made in preparation for the case. It's the cross-examining barrister whose questions probing that evidence are likely to produce anything interesting/newsworthy. And the Reg is primarily reporting what happens in court, not all the tedious documents.

      That'll reverse when it's defence witnesses.

      Of course it could also be that the Reg's coverage tends to focus more on some stories/sub-plots than others ...

      1. Anonymous Coward
        Anonymous Coward

        Re: It's just gets worse and worse...

        Errr I think the OP meant its one sided in Autonomy's favour - all most of the HP witnesses have done is confirm they did effectively NO due diligence and show that there was a potential fractional low ten-hundred millions worth of hardware sales. Nothing approaching 7bn.

      2. gazthejourno (Written by Reg staff)

        Re: Re: It's just gets worse and worse...

        Correct. I'm expecting the second half of this, where HP cross-examines Lynch and Hussain's witnesses and evidence, to contain a fair amount of traffic the other way because that's how cross-examination works.

        It's worth bearing in mind that the reports you read, here and elsewhere, are distillations of what happened in court that day. For the clearest picture it's best to read multiple outlets' reports: we all differ subtly in what we mention because this is such a complicated and nuanced case.

    3. macjules Silver badge

      Re: It's just gets worse and worse...

      Mike Lynch is due to enter the witness box within the next fortnight and will be giving evidence until the start of the August summer holidays.

      After he has testified I should think that HP will look even worse than they look right now.

  5. boardslider

    “Manish Sarin, who joined HP in 2010”

    Sums up the shit show just there...

    1. MiguelC Silver badge
      Holmes

      Are you implying Sarin was toxic to HP?

  6. Doctor Syntax Silver badge

    "He oversaw the due diligence process, he said."

    Not only was it overseen but someone claims/admits to doing that!

    1. Anonymous Coward
      Anonymous Coward

      I'm interested to find out what "overseeing due diligence" involved for the Autonomy transaction.

      If the due diligence consisted of arranging KPMG to carry out this work, but when KPMG were hours into a 3+ month exercise, you were told told by Leo and/or the board that it wasn't needed because they were proceeding with the acquisition anyway, then blame may not lie with the person overseeing the due diligence.

    2. Anonymous Coward
      Anonymous Coward

      I think he misspoke. He mean "overlooked" not overseen :)

  7. J. R. Hartley

    The due diligence report wasn't read

    The defence rests.

    1. Anonymous Coward
      Anonymous Coward

      Re: The due diligence report wasn't read

      Not entirely. Did you read the due diligence document so obligingly provided by the Reg?

      It more or less starts off by saying that due to the rules around takeovers and mergers, the accountants were able to obtain very little information about the company. IANAL but it looks at first sight like an immense piece of arse-covering: "We tried to do due diligence but were unable to due to being unable to get the information we needed."

      I wonder if the HP finance director read that far and decided she needed to read no further?

      The question then becomes what evidence HP **did** rely on in making their bid.

      1. I ain't Spartacus Gold badge

        Re: The due diligence report wasn't read

        Autonomy published audited accounts. Which HP haven't seriously questioned. Their complaint is that large amounts of Autonomy sales were low profit hardware, not high profit software.

        The report is much more concerned about tax issues, and accounting differences than anything else. US corporation tax at the time was much higher than British.

        I doubt KPMG were asking questions about the products. Their job was finance. HP were supposed to understand the product range and sales potential.

        1. xeroks

          Re: The due diligence report wasn't read

          The point about audited accounts is that they only indicate one view of the truth.

          You can rearrange the numbers - without lying - to give an entirely different viewpoint, should you wish. As another poster says: it depends on whether the books are for the taxman, a potential buyer, or for avoiding stock market predators.

          1. I ain't Spartacus Gold badge

            Re: The due diligence report wasn't read

            The point about audited accounts is that they only indicate one view of the truth.

            You can rearrange the numbers - without lying - to give an entirely different viewpoint, should you wish.

            xeroks,

            That's not really true. There is only one set of audited accounts, that if you're a plc will be published and issued to the tax man.

            It is true that there are often lots of judgement calls in accounting. But they tend to apply to what you book as profits and how you account for costs. So for example you can artificially boost profits by having lower bad debt provisions booked than the bad debt you expect to actually happen. The KPMG report talks about this, and implies that Autonomy had what were probably uncollectable debts on their books as an asset - however it also states that they also had provisions for this bad debt in retained profits - so as long as the two match there's little material effect.

            Obviously you can change the books to get different tax outcomes, but that's not really changing the books, so much as changing the company structure in order to minimise tax. And once done, it's a semi-permanent thing.

            Another way to artificially boost profits is to book costs as capital expenditure, so that the cost can be spread over several years, thus reducing the effect on profits of current spending. However even this has no actual effect on profit in the long-run, you've spent the money and will either get a return on the investment or not, the difference is having a dip in profits in one year to cover all the costs (KPMG said GAAP and HP's rules don't allow this capitalisation of R&D) or having smaller profits for the next several years to spread it out evenly.

            The thing that audited accounts give you very accurately is cash flow. You can play around with profits by booking future revenues into the current year (as many software companies have done), and the above methods. But the cashflow is something there's almost no judgement on. What money went in and out of the company's various accounts. And that's the important thing to judge a company on. If they've got a negative cashflow, but are showing profits, you need to be asking questions.

        2. david 12

          Re: The due diligence report wasn't read

          The draft Due Diligence report specifically calls out the fact that hardware sales are not accounted for the way you would expect, and reports that management told them that the amounts involved were not material. It certainly looks like the amounts involved were material, and that the 'draft auditors' were misled. It remains to be seen if this was criminal.

      2. Anonymous Coward
        Anonymous Coward

        Re: The due diligence report wasn't read

        That wasn't his point. The contents of the report are somewhat irrelevant because no-one at HP read it. Arguably no-one at HP had any intention of reading it.

      3. Nick Kew

        arse-covering

        @Benson's Cycle - I don't know where you are. But here in Blighty, if you buy a house, your Due Diligence involves a solicitor and a surveyor. You pay good money to both of them, and get a report full of arse-covering: "we were unable to ascertain [...] so you should check it yourself"; "We recommend a Structural Engineer's report on [...]"

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