Introduction
In August 2011, Hewlett-Packard (HP), a giant technology company based in California, publicized its intentions to buy Autonomy, a software firm from the United Kingdom, for US $42.11 per share. The boards of directors of both firms jointly backed the deal, and the Autonomy board suggested to its owners that they take the proposal (Afsharipour & Laster, 2018). This resulted in an unprecedented flop in the Silicon Valley giant’s shares the disintegration of its employees’ culture and agency conflicts, among other inefficiencies. A breakdown of the key events and challenges resulting from the acquisition forms the basis of discussion for this paper.
Reason for HP’s Pursuit of Autonomy
HP hired Leo Apotheker as its new CEO in November 2010. He was supposed to help the company’s expansion by executing value-adding acquisitions and led its takeover of Autonomy within a year after joining the company. HP’s acquisition of Autonomy would mark a significant shift in approach. While the former excelled in the console market, they were woefully lacking in the software and computer niches. As a result, Apotheker intended to expedite HP’s entry into the software business by purchasing an already well-established organization. The section below highlights part of how the deal was unveiled.
Restructuring and Timing of the Acquisition Deal
HP began considering merging with Autonomy in May of 2011, enlisting the help of Barclays Bank as a consultant. Before the acquisition, share prices usually enter an accumulation period, implying that prices have slightly increased due to more buying orders being set. When HP offered a premium to buy Autonomy, those who knew about the deal from leaked news and business insiders triggered this accumulation phase. The board of directors established purchase rules, including the price, and agreed on a due diligence procedure during that time. At the end of the two days, it was resolved that negotiations should begin. However, the acquisition led to a disruption in the leadership structure, even though HP strived to take charge.
Consequent Governance Issues and How They Were Resolved
After HP bought Autonomy, human resource experts faced integration issues because they had to create a cultural and organizational framework welcoming to employees from both firms. HP’s courteous, sluggish bureaucracy and Autonomy’s aggressive sales culture became more evident. Concurrently, Lynch did not relate well to his new subservient status. He consistently kept HP management out of crucial decisions and opposed complete integration with HP in keeping with his company’s identity (Navarrete et al., 2018). As a result, a conflict of interest emerged between shareholders and management, compelling the matter to end up in litigation, as explained in the following section.
Outcomes of the Deal
HP’s shares plummeted by more than 13 percent in response to harsh pricing criticism. Apotheker was fired after only a few weeks, and Lynch and his new HP bosses were in strife within months. The two companies’ union was tumultuous from the start, with HP’s shareholders blasting the 79 percent premium paid as exploitative (Hopkins & Yemen, 2021). Hewlett-Packard declared an $8.8 billion write-down of its Autonomy investment on November 20, the following year, claiming severe accounting indiscretions and blatant misstatements. The fraud claims were refuted by Autonomy’s former chief executive, Michael Lynch. This signaled the start of a horrendously nasty public relations war between Autonomy’s dismissed CEO and its board of directors that dragged auditing firms such as Deloitte into it.
Party to be Blamed
Deloitte served as the deal’s independent accounting advisor, while HP entrusted its audits to KPMG. Financial Reporting Council (FRC) regulators began investigating Deloitte after the scandal broke. The hearing, initiated on October 10, went on for eight weeks. According to the indictment, it was discovered that Deloitte failed to dispute the company’s disclosure about its treatment of distributor agreements, resulting in a misleading picture of rapidly growing revenues from successful software sales (Aalbers et al., 2021). The fact that Autonomy was the most valuable customer of Deloitte compromised its impartiality, leading to the conclusion that the auditing firm was not critical enough of management’s financial statements, thus bearing most of the blame.
Measures Taken to Address Acquisition Aftermath
Autonomy functioned as a distinct business segment, with Lynch as its director. According to the company’s 2012 report, HP’s offer to buy the outstanding Autonomy shares remained open. On the other hand, technology platforms that foster employee contact and cooperation were designed by HP around its communications channels (Narayanan, 2019). These digital platforms allow many individuals to collaborate on generating creative ideas while being less costly than conventional modalities. Some of the measures from the litigation have been included below.
Conclusion
Dr. Lynch and other former Autonomy managers were accused by HP and US authorities of fraudulently inflating the software business’s revenues and profitability in 2011, resulting in HP overpaying for their company. Business schools study the HP acquisition as one of the worst financial decisions of the twenty-first century. The merging, alongside other takeover guidelines, forms a crucial framework that firms can use to assess risk-free business partnerships.
References
Aalbers, R. H., McCarthy J. & Heimeriks, K. (2021). Market reactions to acquisition announcements. Long Range Planning, 54(6), 102-105.
Afsharipour, A., & Laster, T. (2018). Enhanced Scrutiny on the Buy-Side. Ga. L. Rev., 53, 443.
Hopkins, J., & Yemen, G. (2021). HP and Autonomy: Who’s Accountable?
Narayanan, S. (2019). Analysis of merger & acquisition frameworks from a deal rationale perspective. (Doctoral dissertation, Massachusetts Institute of Technology).
Navarrete, J., Yang, T., & Yoon, S. (2018). Accrual Based Earnings Management and Stock Returns in Mergers and Acquisitions. Pan-Pacific Journal of Business Research, 9(1), 1-16.