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 …
If you're buying with a mortgage, the Building Society may well pick up on the caveats and ask for extra investigations to be carried out. In the past I've had to have additional survey work done by electricians, a sewage consultant, and a specialist in rising damp. As a result we walked away from one house.
I know it looks like arse-covering, but if the surveyor finds the attic hatch mysteriously unable to open and notices displaced tiles on the roof, it's his job to tell you; he can't force the householder to open the trap so he can find the rot in the roof timbers.
OK, you win. You obviously know a lot more about house-buying than I do.
My point was of course to seek to relate the issues in Due Diligence to something that'll be familiar at first or second hand to commentards. I happen to be going through it right now, at what I understand to be a much older age than most first-time buyers.
and a few others that I am too lazy to do due diligence to bother to name.
Try Worldcom communications -- for a time the second largest Telephone Company in the US. see: https://en.wikipedia.org/wiki/WorldCom#Accounting_scandals
"""
The fraud was accomplished primarily in two ways:
1. Booking "line costs" (interconnection expenses with other telecommunication companies) as capital expenditures on the balance sheet instead of expenses.
2. Inflating revenues with bogus accounting entries from "corporate unallocated revenue accounts".
In 2002, a small team of internal auditors at WorldCom worked together, often at night and secretly, to investigate and reveal $3.8 billion worth of fraud.[9][10][11] Soon thereafter, the company's audit committee and board of directors were notified of the fraud and acted swiftly: Sullivan was dismissed, Myers resigned, Arthur Andersen withdrew its audit opinion for 2001, and the U.S. Securities and Exchange Commission (SEC) began an investigation into these matters on June 26, 2002 (see accounting scandal).
"""
In 2011, the HP board consisted of 13 people:
5 directors appointed by Leo:
- Dominique Senequier
- Meg Whitman (ex-eBay, Leo choose her!!!!)
- Pat Russo (ex-CEO of Lucent, Alcatel-Lucent)
- Gary Reiner
- Shumeet Banerji
Existing board members from Hurd's era:
- Lawrence Babbio
- Sari Baldauf (Nokia)
- G. Kennedy Thompson
- Ray Lane (chairman)
- Marc Andreessen (Opsware)
- Rajiv Gupta
- John Hammergren
- Ann Livermore (head of HP Enterprise software)
Amongst those board members, Meg had a reputation for overpaying for acquisitions at Ebay, Marc came onboard as part of Opsware (which HP reportedly overpaid for - 16x revenue). Leo's appointees were likely to follow his lead, leaving only two more votes for a majority (I don't know if HP required a higher number for of votes for large acquisitions). Hammergren and G. Kennedy Thompson were ousted in 2013 for supporting the Autonomy purchase (https://en.wikipedia.org/wiki/John_Hammergren)
Between Leo's stooges (5), those that benefited from the purchase (Livermore) and those forced to resign due to their support for the acquisition (3), combined with the CFO's protests falling on deaf ears, I'm not convinced that HP's board was against the Autonomy purchase.
It would be interesting to know if any of the board did vote against the Autonomy acquisition. This would suggest all board members supported the deal - https://www.nytimes.com/2013/03/30/business/why-bad-directors-arent-thrown-out.html
Post-Leo, the board was quick to heap blame on Leo, but that may just be convenient. And it didn't stop investor anger in the following years.
It depends on the company and the reason for the acquisition.
You've described the majority of Intel's acquisitions perfectly (buy, take what you wanted and spit out the rest), but HP were looking to acquire new revenue streams of products that were growing and could benefit from a larger sales force/potential customer base.
There are many other acquisition models than these (growth through acquiring customers, buying sunset products to bleed customers that can't easily migrate, asset acquisition....the list is long...)
I was there at this time, there was no real way to get in contact with the Autonomy people. There was no interest from their side. We really wanted the tech to use for existing HP customers. Silence no deals.
I was just thinking where they can make their revenue. My theory was they get all them money from GHCQ or how this UK Stasi is called in Cheltenham.
Do you have any evidence to back that up? If so, there are some HP lawyers that would like to talk to you. If not, then there are some Autonomy lawyers that would like to talk to you - defamation law in the UK may have changed a bit recently, but it is still a thing.
Whenever playing in fantastical markets which appear to revolve around creating fabulous ponzi gains for a right dodgy few ... and here be another doozy ....... are the rules of engagement significantly changed to create the illusion of new fiat currency wealth for ponzi spending in the supply of product that simply supplies a basic service already being supplied by others, the true originators of the market franchise?
Competition with imitations and in similar iterations of base product invariably creates conflict and division rather than increasing market share with consolidations.
And it invites all sorts of unholy shenanigans and inevitably ultimately self-destructive mis-steps .....
amanfromMars Thu 20 Jun 19:22 [1906201922] ...... just asking on https://www.zerohedge.com/news/2019-06-20/natixis-plunges-after-its-ill-named-h20-fund-sparks-panic-over-illiquid-holdingsIn all, across these investors, they owns tens of billions in illiquid bonds and may well be engaging in marking-to-myth by occasionally "buying" each other's bonds at specifics prices just to give the impression of a liquid market across billions in illiquid bond holdings.Is marking-to-myth a capital offence? Who does prison time if death is to be cheated and/or avoided? Or does it attract the promise of immunity in the trap that is action with impunity?
And remember .... what's good for the goose is good for the gander is a universally accepted precedent?
So, so far we have seen the Mike Lynch defence focus primarily on the pre-sales due diligence shit-show and the post-sales integration mess. And whilst it has rightly painted HP as a bunch of incompetent asshats, unfortunately in my mind that really doesn't get to the nub of the issue.
As they are claiming fraud, I can only imagine that HP will be focusing solely on the accounts, and at the end of the day, that is all that matters : (A) Were they presented and buffed-up fraudulently by Autonomy? (B) Were the accounts actually good, but that HP just misinterpreted them due to differences in US vs UK accounting treatments?
If (A) is true then you need to ask what the hell the Autonomy auditors were doing. Case closed.
If (B) then all of the other due diligence and integration aspects come into play. Case closed.
I'm really hoping for A.
Most companies inflate their value as much as they legally can; As far as I am aware, HP has not provided any evidence that Autonomy has done anything wrong... meanwhile providing more than enough evidence that they did not know what they were doing.
The HP Claim is that Autonomy inflated the income from clients that were also service providers to Autonomy, which is a claim but I still believe at this junction there is no evidence that Autonomy artificially did anything here, nor a scale of it. Without solid evidence and without even having an estimation of the scale, it really leaves HP in a very haphazard situation, since even after this, HP would still need to show how much it made HP over-estimate the value of Autonomy by.
Long story short, there was evidence even without HP's failure of Due Diligence that Autonomy was not even worth 4 Billion, since IBM literally laughed Autonomy off in their talks at that figure. IBM had done it's due diligence, so why did HP purchase at near 3x that value? There are a lot of issues and unanswered questions on HP's side here. If HP can not answer those questions (and right now it does not appear that they can), it really leans this heavily on the side of B. Even if HP could answer these questions, they still lack the fundamental evidence to prove A... HP have effectively trapped themselves in a lose-lose situation here.
"(A) Were they presented and buffed-up fraudulently by Autonomy? (B) Were the accounts actually good, but that HP just misinterpreted them due to differences in US vs UK accounting treatments?"
What we have seen so far is:
- one clear case of backdating revenue for the January 2011 period. It appears to have been significant (~US$15m) and made the quarter look significantly better for Autonomy. Egan was the primary party involved and there is evidence that Hussain was copied on e-mails, drawing him into the loop either as a directly involved party to the fraud or through negligence for failing to act to address the fraud. Note that this isn't what Hussain was directly convicted of - Hussain was convicted of sending documents containing fraudulent information (proved by Egan admitting to fraud and the documents containing revenue figures that matched the evidence) multiple times via e-mail to HP.
- the period mentioned was not audited by Deloittes (they audited upto 2010 - I'm not aware that they had started the 2011 audit) and does not appear to have been covered by KPMG's due diligence. Unless there is unreleased evidence to the contrary (i;.e. the "systemic fraud" HP talk about but that I am not convinced exists), I believe the auditors are in the clear
- KPMG's due diligence raises a number of questions around the handling of dept, losses and revenue that were legitimate under Autonomy (due to being based in the UK) but that would significantly alter in the event of moving to the US. Examples were losses from US acquisitions offsetting US tax, the tax implications of revenue moved between the US and UK via loans and fair value recognition of acquisitions. These are, as far as I am aware, all issues for HP to identify and resolve - relying on Autonomy's tax/finance/executive teams to provide opinions that later prove to be incorrect is unlikely to be considered fraud unless HP can demonstrate they were subject matter experts. It's why the big accounting firms charge so much and take so long to carry out there M&A work..
So I'm going for "(C) HP really screwed up big time" unless HP have unreleased evidence that proves systemic fraud. At present, I don't believe that the things identified as fraud by HP are actually fraud and the US case against Hussain didn't have to test those points.
I'll put an outside bet on "(D) HP were buying a beautiful unicorn. The only people who could see the beautiful unicorn were the chosen few in the HP board. When the purchase was complete, the beautiful unicorn was actually just an old nag with some white sparkly paint and a cardboard horn. The world thought HP was buying an old nag so it is unclear where the sparkly paint and cardboard horn came from, but Meg made sure there was lots of sparkly paint splashed all over Leo's desk"
No. HP are suing Mike Lynch et al, rather than prosecuting them. Both sides have agreed to have the hearing in front of a single judge rather than a jury. It is assumed that a judge will do rather better at paying attention for many months of tedious testimony.
Looking at the due diligence report which I skimmed in five minutes, the take-away figures from Autonomy are (as I recall, ish) - revenue $2.2Bn, net profit $200m and net assets $2.0Bn. Cashflow $200m. Which actually hang together as a not-too-bad performing company that if you valued at ten times earnings might fetch $2Bn or $3.0Bn on a very good day. What I do not understand is why HP then decided that they alone could see value in Autonomy that made them pay $11.1Bn for it...
To subsequently declare a write-down in value of $8.8Bn (bringing the value back to an approximation to the audited accounting value for 2010) seems to be catching up with reality a bit too late. Did Autonomy claim in to have discovered perpetual motion in a secret memo? Or the philosophers' stone? HP paid around 50 times earnings! Whatever fraud may or may not have been perpetrated in the sale, it stretches credulity that Autonomy could have done anything to attract that kind of premium. HP were mad.
Did Autonomy claim in to have discovered perpetual motion in a secret memo? Or the philosophers' stone? HP paid around 50 times earnings! Whatever fraud may or may not have been perpetrated in the sale, it stretches credulity that Autonomy could have done anything to attract that kind of premium. .... Piscivore
Maybe HP were dissuaded and prevented by superior forces/source in utilising the acquisition? That's who they should be pursuing for right royal compensation?
The likely culprits being ..... ? ..... a motley crew of Universal Sovereign State Leaders/Absolutely Fabulous Actors. It is an Open Field in which One Assumes and Consumes and Presumes to Virtually Realise, Addictively Attractive Applications for Live Media Population with New Information for Special Intelligence Services.
Does One have to Imagine and Post and Host that Perfectly Well to have IT Share it for Real? And what whenever one discovers IT Pricks Bubbles and Creates AIMovements ......... in Command and Control with Communications and Computers.
Methinks then is such Proprietary Intellectual Property a Juicy Lucy Target for Military/Para-Military Acquisition for the Advantage Afforded by an Almighty Remote Virtual Leverage.
And there's umpteen of those forces and sources spread all around the globe and attending to State and Non State Actor Needs and Feeds with Seeds in Future Scripts and Novel Events for Mass Media Realisation with Presentation in UpComing Tales, so it should prove very popular to The Switched On Host in those Networks/Programs/Operating Systems Drivers too.
'Tis an Embarrassment of Riches indeed.
Isnt IT just!, do you think the perpetrators will be brought to justice?, or the usual “nothing to see here’? .... Cliff Thorburn
Howdy Cliff,
Whenever there is nothing usual to see here, what/who decides on who/what faces the slings and arrows of an outrageous justice system? And what would be the charges/phishes to avoid/answer?
w0rd :-) .... Anonymous Coward
wwww0rlds Surely Need to Generate wOrds to Follow, AC. Such Supply Immaculate Future Leads to Follow and Encourage. And, fortunately, no small bit part for SMARTR IntelAIgents.
And most encouraged and thoroughly enamoured of Perfect Play Modules. Almighty IntelAIgent Bubbles ..... Remote Spheres of Virtual Influence for Earthly AId Direction.
Does psychosis collapse whenever recognising infinite realities, and autonomously morph/self actualise into Creative Genii Fieldwork? Or is that a Path which needs to be suggested for population?
And for the Delivery of Absolutely Not Perfect Solutions to Practically Imperfect Situations something of a firm favourite with Patrons and AIMaster Pilot Programmers .... Virtual Saints and Sinners.
I cannot resist but to cast my mind back to the speech by President George Bush the first, we are indeed as you know at a turning point -
“Today that new world is struggling to be born, a world quite different from the one we’ve known. A world where the rule of law supplants the rule of the jungle. A world in which nations recognize the shared responsibility for freedom and justice. A world where the strong respect the rights of the weak”
Is it not then both rightful and righteous that the rule of law does indeed supplant the law of the jungle spooky great game misdemeanours presently abounding?, where the constant preaching of the law of terror both abounding and resounding prevents key implementation resulting in catastrophic failure to relay necessary instruction and concerted actions abounding?
Is it me or has the game become stalemate?, or perhaps I am missing vulture capital victorious ventures?, viva la diva indeed.
Is it me or has the game become stalemate?, or perhaps I am missing vulture capital victorious ventures?, viva la diva indeed. ..... Cliff Thorburn
FWIW, it must be you, CT, for how can you be missing Vulture Capital Victorious Ventures whenever they be oft frequenting threads and IntelAIgent Streams here?
What do you think El Reg is here for? Nothing?
“What do you think El Reg is here for? Nothing?”
In an illogical world, El Reg often offers a logical alternative insight into the unseen and unknown amFM, even your posts :-)
It must be said however that there have also been times where it has contributed and attributed to great game brinksmanship and bias, to quote -
“They’re cheating”
Clearly showing and demonstrating times when previously written scriptures can be erased as simply as a series of clicks, as opposed todays gone by where great fires were required to remove books recording true historic events was it not?
Clearly showing and demonstrating times when previously written scriptures can be erased as simply as a series of clicks, as opposed todays(sic) gone by where great fires were required to remove books recording true historic events was it not? .... Cliff Thorburn
With particular and peculiar regard to the above, CT.
Any sudden and/or unexplained disappearance of novel text shared for free presentation and peer review invariably has one realising it has the inordinate potential to disrupt extraordinarily and way beyond the command and control of any current predominant systems with crashing programs.
And in these halcyon days of the accurately targeted 0day, it is not so much the removal of tracts recording true historic events which burn down edifices, it is the secreting of future facts, which has rivals both in competition and/or opposition, drawing attention to themselves and their Achilles Heel vulnerabilities and now rotten ripe for merciless exploitation?
‘merciless exploitation?’After a decade of merciless exploitation and money wasting exhausting exploration, therein summarises the journey so far leading to the present. .... Cliff Thorburn
How about we play around with almighty successful exploitation, CT?
Where does that lead to? A Heavenly Space with Hellish Places? A Hellish Space with Heavenly Places? And is it wise to know there are engaging differences/similar parallels with one servering needs and feeds to such Places/Space.
And certainly more than enough to Tempt and Tease Out Thoughts of Appointment/Anointment/Sweet Unconditional Surrender.
Tender that further along to a Loving SubMission and ..... be Prepared for Remarkable EMPowerment in Newly Delivered Environments. In AINutshell, Our Future Universal Digs.
First question of business? What's to go where and to whom and for what greater good purpose, is real doozy for shaking up anything and everything right down to their base fundamental roots. And it exposes and tests for the presence of exemplary leading abilities in others, or not as the case may be whenever the facility/utility/ability is missing.
Such is surely always resolved with a Leading Action Avidly Followed and Reported On. ....... but I'm sure we all have realised that Terrifies Current Existences/National Assemblies/Peoples and Countries.
Give them something you weren't expecting from the above, sit back and relax, and just watch what happens, right on time, every time.
:-) I appear to have drifted across any number of parallel tangents there. :-) And for which I wouldn't even dare dream of apologising for, given the pleasures incurred and delivered.
‘And certainly more than enough to Tempt and Tease Out Thoughts of Appointment/Anointment/Sweet Unconditional Surrender.’
I often wonder amFM when ‘Unconditional Surrender’ and other profane demonstrations of insanity in Live Operational Virtual environments whether the controlling forces behind such exercises actually understand that there is nothing more than thumb twiddling frustration and boredom being misinterpreted as rabid rebellion?, and if not then what do they actually expect?, a cabaret?, Elvis Impersonation?, entry into the X Factor?
https://youtu.be/HHRd-ctw1Jk
Market cap around time of HP offer: ~£6.8bn
From KPMG's report:
Assets: ~$3.5bn (Jun 30, 2011)
Liabilities: ~$2.2bn (Jun 30, 2011)
FCF: target $200m, $187m in 2009/$195m in 2010, was $111m in H1 2011 pending adjustments for acquisitions
Revenue: $870m in 2010, $415m in H1 2010 and $476m in H1 2011 (so you would expect ~$900m+)
Gross income: $356m in 2010, $170m in H1 2010, $192m in H1 2011
Net income: $257m in 2010, $123m in H1 2010, $134m in H1 2011
Ignoring the KPMG report for a moment, my recollection was Autonomy was believed to be overvalued based on its share price because of the majority of its growth coming through acquisitions and those acquisitions weren't delivering the expected level of growth BUT Autonomy was working to address that. Autonomy was growing in a tough market and was showing signs of understanding what it's future market would look like based on the cloud and services.
To put those figures in perspective, the annual revenue/annual profit is similar to RedHat's quarterly earnings. Given what IBM paid for RedHat, Autonomy's market cap wasn't too far away from the right price.
However, I think IBM overpaid for RedHat, but only by ~10%. Not the 50+% that HP overpaid for Autonomy.
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