back to article Lynch was 'willing to lie' to High Court over Autonomy whistleblower, claims HPE

Mike Lynch was "thoroughly unreliable" and "willing to lie" to the High Court about the $11bn purchase of Autonomy by Hewlett Packard, according to HPE's lawyers in court yesterday. Starting the marathon closing arguments in Britain's biggest fraud trial, Laurence Rabinowitz QC spared nobody's blushes as he charged straight …

  1. a pressbutton

    Judge is correct.

    They say that you had buyer's remorse and Hewlett-Packard, in the light of that remorse, scratched around for reasons to justify its rather immediate writing-off of a large part of the purchase price. That's what they say. You say they're wrong about that and they say they're right about that.

    To which I would add:- No-one forced HP to vastly over-pay for Autonomy, from an earlier post

    Courtesy FT Alphaville 11/09/19:

    We’ll leave you with this, a quote from Sun Microsystem’s founder Scott McNealy. Having watched the stock of his company appreciate nearly 14-fold during the dotcom bubble, and then collapse 95% during the bust, McNealy was bemused that investors ever considered paying what now looks like a rather diminutive 10 times sales for the computer hardware company’s stock at its peak in 2000.

    Why? This is what he told Businessweek in 2002:

    (https://www.bloomberg.com/news/articles/2002-03-31/a-talk-with-scott-mcnealy)

    At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realise how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?

    10 times sales…

    … that made me think

    Autonomy was sold for $12bn 18/8/11 and revenue to the end of the last FY – 31/12/10 was $870m

    That is a ratio of *13.8* times revenue.

    And I expect this lawsuit to be a massive waste of money too.

    1. Chris G Silver badge

      Re: Judge is correct.

      Investors and VCs have proved countless times that, in the face of an investing furor they have no sense of or abilty with maths.

      1. Anonymous Coward
        Anonymous Coward

        Re: Judge is correct.

        The reason why I'd pay what amounts to 10x revenue for some shares is if I believe the next bloke in the queue will pay 11 times.....

        Of course eventually reality sets in and it goes boom, traders just hope they're not the ones left holding the baby.

        For me this is one of the reasons why stock markets, in their current forms, don't help the economy at large.

      2. Anonymous Coward
        Anonymous Coward

        Re: Judge is correct.

        Yep, as usual VC should stand for "Ventilated Cranium", because most VCs seem to have a hole in their head where a brain should be

    2. oiseau Silver badge
      Facepalm

      Re: Judge is correct.

      No-one forced HP to vastly over-pay for Autonomy ...

      Indeed.

      Sums this all up quite neatly.

      Very much so.

      Makes for quite an unfortunate situation for Meg el al, but that's just what happens when you play pretend monopoly with other people's real money.

      O.

    3. Anonymous Coward
      Anonymous Coward

      Re: Judge is correct.

      "And I expect this lawsuit to be a massive waste of money too."

      The case as it stands (i.e. HPE have not lost....yet) means that HPE and their investors have been defrauded by Autonomy, Mr Lynch and all his friends.

      If HPE were to lose this case, the legal actions would move to the next stage - HP's investors versus HPE.

      Proving thar Autonomy's was guilty of fraud or finding a technicality that stops HP being on the receiving end of investor legal action is likely worth an awful lot....

      1. dajames Silver badge

        Re: Judge is correct.

        Proving thar Autonomy's was guilty of fraud or finding a technicality that stops HP being on the receiving end of investor legal action is likely worth an awful lot....

        Not if they lose ... and I don't see how they can fail to do so. HP should have been through a lengthy due diligence process, instead they made a few phone calls. They can't really pass the blame onto anyone else.

        1. Anonymous Coward
          Anonymous Coward

          Re: Judge is correct.

          I'm not saying HP will win, but there is always the chance of a draw/no result that means in a re-match and another 5+ years delay or an end to the threat of further investor legal action altogether.

          For HPE, this is about delaying the inevitable while hoping for a miracle. For Lynch, this is about getting a fair hearing that may save him from US corporate "justice".

  2. Steve Davies 3 Silver badge

    HPE screwed up big time

    Part of their 'due diligence' (ROFL) should include valuing the company. They didn't either do that or their 'this is a crok of shit' story fell on deaf ears.

    If it is the former why aren't HPE filing suit against the people doing to due diligence?

    If it is the latter then tough. 'Caveat Emptor'.

    Meg and the HPE Board (at the time)who sanctioned this deal should be liable for every bent penny of the writedown.

    1. Roland6 Silver badge

      Re: HPE screwed up big time

      >Part of their 'due diligence' (ROFL) should include valuing the company.

      Well for HP to make an initial offer, they must have valued the company...

      I suspect they got carried away in the bidding, thinking they had to offer more to out bid their imaginary competition. Easily done, you only need to watch a public auction to see this happening, where people can end up 'winning' but paying more than they could have purchased the item on the high st.

  3. The Nazz Silver badge

    Princess Diana

    This saga, though much lengthier, reminds me of the time of the Princess Diana inquest.

    Everyone knew, or at least could see, what the resulting outcome would be from the outset.

    1. Anonymous Coward
      Anonymous Coward

      Re: Princess Diana

      Two decades worth of headlines for The Daily Express?

  4. Anonymous Coward
    Anonymous Coward

    Is this still a thing, this HPExit?

    1. Boris the Cockroach Silver badge

      Only to HPE

      And popcorn manufacturers

  5. macjules Silver badge

    Something wrong in the land of powdered wigs ..

    I really doubt that an eminent QC such as Rabinowitz would say such things in the knowledge that the judge would immediately shoot him down in flames, let alone being forced to make reference to the Supreme Court. The summing up reeks of HPE's "experts" having pretty much briefed Rabinowitz on what to say, presumably fearful that if Lynch is cleared then there will not be any extradition and Mystic Meg might have to answer some hard questions at the next AGM.

  6. The Pi Man

    When HP lose do they have to pay costs for this shit show, or do the UK taxpayers get to foot the bill?

  7. John H Woods Silver badge

    Due diligence not really required...

    What proportion of Vulture commentards thought $11B was a reasonable price for Autonomy when the purchase was made?

    IS2R it was about 0%.

    1. Anonymous Coward
      Anonymous Coward

      Re: Due diligence not really required...

      With respect sir, that's clearly not what's being called into question here. The fact we could all see they were selling bayesian snake oil doesn't mean HPE should get a free pass if they failed to.

      1. John H Woods Silver badge

        Re: Due diligence not really required...

        Absolutely - but it does raise the question as to why they couldn't

    2. Anonymous Coward
      Anonymous Coward

      Re: Has Ray Lane or Marc Andreessen been called as witnesses?..

      I think HPE's plan was to attempt to win the case (despite all the evidence that this case is just for our amusement) rather than provide evidence of their own failings.

  8. Aristotles slow and dimwitted horse Silver badge
    Thumb Up

    @ Gareth...

    Hi Gareth, firstly, many thanks for the excellent coverage of this case throughout the year. I'm sure we're all riveted by this case and are all interested to see how it turns out next year. Keep up the great work.

    In your ongoing reports of the case though, we've read some evidence that the underlying root of the fraud has been discussed in terms of accounting irregularities - but seemingly at a high level. I was just wondering as to whether in actual court (unless I missed a story or two due to holidays) whether HP has delivered evidence in terms of a detailed forensic accounting analysis of the fraud, and how it all adds up to the tune of the $8bn or so they are suing over?

    Many thanks.

    1. gazthejourno (Written by Reg staff)

      Re: @ Gareth...

      Both sides did call expert accounting witnesses. Unfortunately they did this at full forensic accounting length during late summer and early autumn when there's lots of other news going on.

      I'm hoping to use the quiet Christmas period to try and summarise those parts, though it'll be difficult as the court people who I ask for copies of exhibited graphs, spreadsheets and so on will be on holiday. There is a fair amount of it in the closing arguments too.

  9. Tinslave_the_Barelegged
    Unhappy

    Big (Wo)Man Syndrome

    Never underestimate the discarding of logic that is possible when senior people desperately want to add some M&A activity to their CVs.

    I once worked for a company that took over (covered as a "merger") a pure R&D company based in France (we were in Scotland), that was obviously seriously loss-making and underperforming, but which was backed by the same venture capitalists as the company for which I worked. It seemed obvious to me, a mere IT bod, that there was no corporate fit or merged value; it was all based on wishful thinking and driven by bosses' greed and arrogance. I was told to fuse the two IT estates "so that they're completely seamless". This seemed utterly daft to me, as there were about 10 people, in a company of 400, who were common to both companies.

    I decided to back myself, and "merged" the IT estate with a sort of firewall-API that used a VPN and some simple info transfer, but I had countless sleepless nights, thinking the great and the good must be seeing some secret business sauce that was invisible to me.

    Two years later, my boss called me in. He said "You've got three hours to disconnect any connections between us and France, and you have to keep this quiet." The chickens had come home to roost and the money pit that was the acquired company was flogged off for its assets. Because of my earlier decision, we could do the disconnect in 30 minutes, but it would have taken weeks or months had I done as I was told at the time.

    The only difference between my understanding at the time, and the understanding of the great and the good, was that I didn't get shedloads of cash and share options as a result of a "successful corporate merger". The only difference between my anecdote and this article is scale.

  10. Maximum Delfango Bronze badge
    Facepalm

    It's a tough call...

    Weighing up Autonomy's foundations of bullshit against HP's woeful incompetence. If I was the judge I'd tell them both to get the fück out of my courtroom right now or I'd have them cavity searched.

  11. BebopWeBop Silver badge

    I suspect that Mr Justice Hildyard. will find that US 'justice' a hardly compelling case in his judgement (whatever that might be), he might even determine to examine the evidence before making a decision.

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