(Adds further quotes, background)
By Paul Sandle
LONDON, Nov 20 (Reuters) – The former head of software firm
Autonomy denied on Tuesday that there were accountancy problems
at the company he co-founded, after new owner Hewlett Packard
blamed irregularities in Autonomy’s books for a massive $5
billion charge.
Irish-born mathematics whiz Mike Lynch, who led the firm
when it was sold to HP last year for $11.1 billion, said
mismanagement of Autonomy by its new owners was to blame for the
decline in its value.
HP said earlier on Tuesday it had taken an $8.8 billion
charge in the fourth quarter, most in the form of a $5 billion
write-down related to the acquisition of Autonomy. It said it
had discovered “serious accounting improprieties” in the
software firm’s books and a “wilful effort by Autonomy to
mislead shareholders” after a whistleblower came forward.
In an interview with Reuters, Lynch said he was confident he
would be absolved on any wrongdoing. He said he had not been
notified by HP about the allegation before it was made public,
nor had he been contacted by any authorities.
“We are shocked, this is a big surprise, it’s completely and
utterly wrong and we reject it completely,” he said in a phone
interview from a London office where he was meeting with other
former Autonomy executives, including its former chief financial
officer.
“We have not heard anything from HP, they have not been in
touch and we don’t know what they are on about,” he said. “I
fear that this is a bit of a distraction on the day when they
produce their worse set of results in the 70-year history of the
company.”
Lynch said the size of the writedown suggested it was
impossible that HP could have missed problems with the accounts
during its examination of the books before the transaction.
“Look at the size of the writedown. If you’ve done
meticulous due diligence with 300 people you can’t get it that
wrong.”
Lynch, who has a PhD in signal processing from Britain’s
Cambridge University, received about 465 million pounds from the
sale of his stake in Autonomy to HP last year.
He co-founded the firm in 1996, using technology based on
advanced mathematics known as Bayesian probability theory to
develop algorithms that can search through e-mails and phone
calls. He had grown the Cambridge-based company into a supplier
of search software to multinationals and governments worldwide.
However, last year when news of the planned acquisition by
HP broke, many financial analysts questioned the deal, with some
raising questions about Autonomy’s organic growth, its cash
conversion and its deferred revenue.
Analyst Paul Morland at Peel Hunt said after the HP bid was
announced in August 2011 that it “seemed to defy logic”.
“We believe HP shareholders should be worried,” Morland said
then. “Even before you consider the very high price, what are
they going to think when they realise that margins have been
contracting, profits are growing in single digits and for some
reason those profits aren’t converting into as much cash as they
should?”
The purchase of Autonomy was the centrepiece of former HP
CEO Leo Apotheker’s bid to make HP a force in software. Lynch
came as part of the takeover, with a remit to build HP’s
software division. But his relationship with Meg Whitman,
Apotheker’s successor, soured, and he left HP in May 2012.
He said the real problem was poor management of Autonomy and
other acquisitions by HP.
“There was a coup d’etat and you ended up with a lot of
internal infighting – which there has been a long history of
within HP – and Autonomy got caught in that, and it got buffeted
to the point where it lost hundreds of its staff and ultimately
its top management team,” he said. “They’ve managed the assets
since that point and the results have gone down and down.”
HP declined to comment on Lynch’s remarks and referred to
its earlier statement about the causes of its writedown.
Lynch said he needed to find out what evidence had led to
the charge of accounting problems, once the distraction of the
earnings report had died down.
“It’s really sad for us at Autonomy to have seen the company
so poorly managed over the last year, to see so much value
destroyed,” he said.
(Reporting by Paul Sandle; Writing by Kate Holton; Editing by
Andrew Callus and Peter Graff)
