HP – The eggs have landed.

HP loses more face over Autonomy.

• The end of the criminal investigation into HP’s allegations of fraud at Autonomy leaves the management of HP with egg all over its face.
• The UK Serious Fraud Office (SFO) has declined to proceed with fraud charges against the former executives of Autonomy stating that there is not enough evidence to be confident of a conviction.
• The US investigation will continue but I am almost certain that it too, will decline to proceed to formal charges.
• This is because, while HP is a US based company, Autonomy was listed in the UK and consequently that it is the jurisdiction where any crimes are most likely to have been committed.
• Consequently, it seems even less likely that there will be enough evidence for the FBI to press formal charges.
• It increasingly looks like the original conclusion that I drew over two years ago (see here) will finally be proved correct.
• Ever since HP purchased Autonomy for $11bn, and less than 12 months later wrote of $5.5bn of that value, it has been clear that HP failed to do its due diligence properly.
• Autonomy was a listed company, and the market was well aware that one needed to tread very carefully when looking at Autonomy’s published figures.
• Furthermore, it appears that HP was made aware of many of the contested issues prior to the closing of the deal (see here) but chose do nothing.
• Consequently it is increasingly clear that while Autonomy’s accounting practices could be seen as aggressive, they remained within the rules.
• It comes as no surprise to me that the SFO has declined to prosecute and I am sure that the FBI will do the same.
• This will leave HPQ’s management with little option but to admit that it failed to fulfil its obligations to shareholders when carrying out its due diligence.
• I would not be surprised to see the filing of a class action lawsuit against HP.
• This is unfortunate as HP has done a reasonable job in cutting costs and getting the ship back onto an even keel.
• However, the company remains without any real strategy for its long-term future and the split into Hewlett-Packard Enterprise and HP Inc. solves nothing.
• I continue to think that HP will continue to drift along allowing most of the technology industry to pass it by.