Autonomy was a 'pure-play software company', testifies former HP chief exec Léo Apotheker Former HP top man Léo Apotheker told the High Court yesterday morning that Mike Lynch described Autonomy to him as a "pure-play software company". HPE's case is that nobody from their side knew very much about Autonomy's hardware dealings before it bought the unstructured data analysis business for $11bn in 2011. Autonomy's …
"Responding to Miles's questions about HP's accounting, Apotheker snidely remarked: "It appears that HP's forecasting capabilities and abilities under the CFO were not very good.""
I don't know about that. He said Autonomy would be fantastic, she said it would be shit. I would have said she was pretty spot on the money. All $8.8bn of it.
I'd say she was bang on the money too.
He froze her out of the discussions surrounding the acquisition, then tried to fire her when she found out they were going to buy Autonomy anyway. I don't think he can blame her for anything given she was completely ignored during the whole process.
As an ex-HPer I don't hold any of the board members or execs in high regard, but it doesn't sound like you can blame Lesjack for any of this mess.
Yes you can blame her. She was the CFO and she folded under pressure. At she least she knew and actually spoke up, I will give her that. But as a CFO she could have, and should have, stopped the deal. Oh yeah, and where is the genius Ray Lane in all of this? And as for Meg, Witless Meg Whitman. MWM.
Ignoring the CFO seems like a really bad idea, especially when litigation seems to revolve around the accounts.
I also think hardware is a bit of a red herring. If I was buying Autonomy's system, I'd want it as their 'appliance' model, so hardware included. I'd have more confidence that there's be fewer hassles with patches, drivers & general compatibility issues. I'd also think that from Autonomy's point of view, they'd prefer VAR's to also use the trusted hardware platform.
And I don't think the idea that hardware was sold at a loss, if the VAR was also buying licences, consultancy and support. Isolating elements of deals I think gives a false picture, and the correct way to look at it is the overall P&L, margin etc on deals that were closed, and in the pipeline. And I'd really want to see that analysis if I was doing due dilgence with the idea of buying the company.
"I also think hardware is a bit of a red herring. If I was buying Autonomy's system, I'd want it as their 'appliance' model, so hardware included."
Or maybe Leo's cunning plan was to move Autonomy to an appliance model (the mythical synergies that never seemed to appear) without bothering to read the accounts and discovering that Autonomy were already using hardware to bump revenue numbers?
Whether the "bump" was fraud or part of Autonomy's business model is left as an exercise to HPE's lawyers.
I think it makes sense. So Apotheker brought in to transform HP away from being a box shifter into a solutions provider, or systems integrator. Simply pushing tin is low margin, and modest revenues from support contracts. So if HP wanted to get more margin & revenues from flogging servers and storage, Autonomy seemed a good way to go further and help customers manage storage & data.
But that's a challenge, especially as it'd mean HP would need to transform sales into solution sellers, and the ops side into delivering and managing systems.. Especially when parts of HP seemed reluctant or resistant to change. Then came the price issue, concerns from investors, so damage control and Apotheker ousted. That I suspect will be part of the defence in this suit, and Lynch's countersuit, ie the expected benefits and synergies were botched, but the potential was there.
(And I also miss the old days of HP, especially being sent a nice, hardback catalogue of all their test gear. The trusty HP4952 was a great bit of kit, but sooo many interesting looking gadgets to test other things.)
- Leo didn't read the 2011 figures and relied on Autonomy's 2010 figures
- Leo clashed with his CFO who thought Autonomy had been overvalued
- KPMG did not have adequate time to carry out due diligence to form an opinion of whether the acquisition should proceed (i.e. hours or days, not weeks)
Will they raise the specter of a bid from Oracle rushing them? Or was that Leo's way of moving the board in the correct direction?
Apparently he still has the attitude of the high-flying CEO. He obfuscates, does not answer directly and apparently thinks he can just refer lawyers to existing documentation as an explanation. That attitude is usual when brushing off underlings or competitors, but such behavior will undoubtedly not be appreciated by the judge, I wager.
He was richly rewarded for his incompetence. After further sinking HP, THIS was his reward:
"After HP, Apotheker returned to Paris. He, along with some private equity firms in Silicon Valley, are considering to invest in mature and distressed companies. In March 2012, he appeared on a conference call, hosted by Nomura Securities analyst Rick Sherlund.[18]
On June 1, 2012, he was appointed as an independent director to board of the Paris-based information technology services provider, Steria.[19]
"He currently sits on the supervisory boards of Schneider Electric SA, Steria, and GT Nexus. He is also a board member of PlaNet Finance - a non-profit organization.
In December 2012 he was appointed Chairman of the board at KMD, a Danish information technology service provider.[20]
In 2014 he joined UNIT4 - a Dutch software provider, headquartered in the Netherlands - as Non-Executive Chairman of the Board.[21]
In May 2016 he joined Signavio GmbH - a German software provider, headquartered in Berlin - as Non-Executive Chairman of the company's Advisory Board."
So why should he feel any guilt? The industry has already forgiven him! Blame it on the CFO!
What I'm more surprised about here is that HP actually have an "ethics department."
So where is this small and not oft visited department you ask? Well, you guessed it...
“I eventually had to go down to the cellar to find them.”
“That’s the ethics department.”
“With a flashlight.”
“Ah, well, the lights had probably gone.”
“So had the stairs.”
“But look, you found the department, didn’t you?”
“Yes,” said Arthur, “yes I did. It was in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying..."
... yeah yeah yeah... whatever. I can't be arsed finishing it.
To be fair I doubt the QC would give you a good account of a case without the documents to hand.
In a big case like this he's probably had time to study the documents in the past few weeks and will have the most significant stuff at his finger-tips now. By the time another case or two have gone by he very likely won't.
My experience was that I would be totally dependent on the case file. It would have been some months at least between writing a report and going into the witness box. I don't know it Apotheker will have had the chance to see the documents he's now being shown; more fool him if he's had the chance and not taken it. If he hasn't had the chance to refresh his memory then it's not surprising that he can't remember a lot of stuff until he's shown it. It's also not surprising that a cross-examiner will jump on it.
In a private meeting between the two chiefs in April 2011, Lynch "gave a very positive description of his company" with emphasis on Autonomy's 2010 full-year financial results, Apotheker testified.
So damned positive that Apotheker rolled over for his tummy ro be rubbed. Well I guess he has walked with a handsome payofff - I don’t know how he could say this in public if he needed another job.....
Maybe it's just me, but all the public vilification of Autonomy's Mike Lynch starts more and more to look like a coverup of gigantic proportions, especially now it's on record that the CFO did red flag the deal.
I can't say I'm impressed with either side, but it seems to me that Leo dropped the ball in a spectacular fashion with respect to due diligence and has since been blaming Autonomy for it.
Going to court for it may not have been the wisest move, but I guess he doesn't have that much in the way of options..
Absolutely none of that surprises me at all. Its like I said last week, HP buys companies and tries to make something stick. Anytime someone says,"thats a stupid idea", they get silenced. Whether its Leo denigrating (even now, knowing that he was taken by Autonomy! What an asshole!) his CORRECT CFO about the lousy deal being made, or Carly Fiorina denigrating David Packard opposing the HP/Compaq merger, HP just bought stuff for the hell of it without a whole lot of fore thought, expecting that they could make it into something after the merger. What a joke. Sometimes in life, you have to take a step back and realize that these people are basically stupid. Carly Fiorina and Leo Apotheker are basically stupid. They have people skills and used those to climb the ladder, but as far as technology goes and producing some forward thinking, they were essentially stupid.
AFAIK all Autonomy's hardware sales were flogging 3rd party kit like dell and emc. From that its not unreasonable to call them a pure play software company. I suspect he was also appealing to Leo's vanity as a comrade in arms - ex-SAP.
This trial is doing nothing to dissuade me that this was a catalog of Board failures at HP, arguably over at least 10 years at this point starting with consistently picking incredibly poor choices for CEO.
A correction to my previous comment about Leo being a village idiot, he is a national idiot. He got mad at his CFO who thought the deal sucked, a CFO who was doing her job competently. I doubt you can find a company the size of Autonomy that is a true, pure whatever play. And this is highlighted in the various financial reports he obvious never read or could not understand. Most large companies have their fingers into a few related areas if for no other reason than some customers asked them to.
HmmmYes,
"Several 10s of million on execs and accountants and legal does not seem to buy you a lot competence"
Correction:
It *does* buy you a lot of competence !!! ......
just *not* in the areas that you think you are paying for !!!
Senior 'C' level people are extremely competent at selling themselves and their own overblown knowledge of everyone else and *their* competencies.
It is simply a case of one Blag artist being outdone by an even 'better' Blag artist !!!
They think that is their job *but* cannot handle finding out that some other 'C' level person is 'better' at it, hence the need to 'blame' some other person even when they actually did their job well/correctly.
Did Mike Lynch write down that we are all software quote, and sign it in front of Automys legal dept?
Otherwise its just bollox.
Agree given how little Leo claims to actually remember, given what is in the 2010 report, I suggest Leo is misremembering the conversation.
The key paragraph, that clearly describes what Autonomy mean by a "software model", seems to be the Financial Model in the Business Overview:
Financial Model
Autonomy is one of the very rare examples of a pure software model.
Many software companies have a large percentage of revenues that stem
from professional services, because they have to do a lot of customisation
work on the product for every single implementation. In contrast, Autonomy
ships a standard product that requires little tailoring, with the necessary
implementation work carried out by approved partners such as IBM Global
Services, Accenture and others. This means that after the cost base has
been covered, for every extra dollar of revenue that comes in significant
benefits can fall straight through to the bottom line. What this offers is a
business model with a proven record of strong operating leverage and that
is expected to continue to deliver industry leading operating margins and
revenue to cash conversion.
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