According to Reuters, Hewlett-Packard Company’s (HPQ) request to a federal judge to settle a lawsuit related to the acquisition of Autonomy has been denied. Hewlett-Packard had appealed to U.S. District Judge Charles Breyer to dismiss all claims against H-P’s directors including CEO Meg Whitman, arising out of the $11.1 billion Autonomy acquisition.
In the litigation, shareholders of the company alleged that H-P’s board members including its chief, Whitman were well aware of the accounting frauds and that they did not examine Autonomy’s financial statements well before signing the deal.
The judge was convinced and commented it would be unfair for shareholders because it mostly freed H-P from liabilities including some suits that might not be related to the Autonomy deal.
The accounting irregularities related to the acquisition of U.K-based business software maker Autonomy Corp. had the 73-year old tech giant recording a huge impairment charge of $8.8 billion in its fourth quarter 2012 results. The bulk of the charge (roughly $5.0 billion) was to nullify the improper accounting practices relating to Autonomy’s financials prior to the acquisition.
H-P alleged that the disclosure of certain accounting misappropriations in Autonomy’s financials made the buyout more costly.
However, these allegations were denied by Autonomy founder, Mike Lynch. H-P’s much-hyped Autonomy acquisition was marred by several lawsuits by investors who claimed that they were misled by the above-mentioned irregularities.
Although the Autonomy acquisition has put the company into financial mess, its strategic focus on the software business will help it to achieve long-term profitability. Despite the slowdown in overall revenues, the Software segment has remained a bright spot over the past few quarters. Autonomy no doubt helped H-P’s business, though its exact contribution remains unknown.
We believe that successful efforts to transform Autonomy into a software revenue driver would strengthen Whitman’s position as a CEO and would eventually bring back investor trust.
Despite continued pressures, H-P managed to remain the leading PC vendor according to latest estimates from research firm IDC. Moreover, now that PC shipment growth is returning to developed markets (IDC expects 7.1% growth), H-P’s prospects may be expected to improve.
Considering the situation, we believe that H-P could well face several other lawsuits. However, macroeconomic challenges and tepid IT spending remain near-term concerns. Competition from International Business Machines (IBM) and Oracle (ORCL) should also not be discounted.
Currently, H-P has a Zacks Rank #3 (Hold). Investors can also look at Micron Technology (MU), which has a Zacks Rank #1 (Strong Buy).
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