Fallout from HP-Autonomy deal fiasco continues

Shareholders have sued

When news hit last week that HP was accusing Autonomy of grossly misleading them  and of outright accounting improprieties, you knew it wasn't going to be pretty.

And sure enough, shareholders turned around and sued HP upon hearing the news of the $8.8 billion write-down. It just keeps getting worse for the beleaguered HP (NYSE: HPQ).

Meanwhile, OpenText is trying to take advantage of the fiasco by trying to lure Autonomy customers to them by offering a one for one license trade with no additional cost for the Autonomy customers. Not sure that OpenText is the best bet when it comes to Autonomy customers, but you can't blame them for trying. As Tony Byrne pointed out on the Real Story Group blog, the two companies don't match up very well and moving right now might not be the best idea.

The analysis of what happened also continues with a report in the Wall Street Journal that Autonomy at best used "aggressive accounting practices" and also played accounting tricks including reporting revenue that would have been deferred under U.S. accounting rules. The report goes on to state that Autonomy made "round-trip transactions" in which it essentially traded Autonomy services for a client's and reported it as revenue anyway.

HP continues to investigate the deal, but the obvious question is why is that happening now. 

If as the WSJ article alleges there were clear warning signs regarding Autonomy's accounting practices, why didn't HP or its auditors find these issues before the deal was struck, especially when you consider that many said HP grossly overpaid for Autonomy. There are so many questions here, but the fact is that Autonomy customers are going to face a decision at this point. For the short term at least, if the products work for you, whatever is going on in terms of the accounting practices of the firm shouldn't matter.

It doesn't appear to be a great marriage, but how could HP possibly dump Autonomy at this point without risking getting pennies on the dollar? If I were an Autonomy customer, I would sit tight and begin exploring my options, but I wouldn't make a panic move until you see how all of this financial rigmarole plays out and HP makes clear what it intends to do with Autonomy products and services.

For more information:
- see the OpenText press release about its offer to Autonomy customers.

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