Exclusive: HP to settle suits over Autonomy deal; make claim against ex-CEO Lynch

Fri Jun 27, 2014 4:54pm EDT

A view of the Hewlett Packard headquarters in Palo Alto, California November 23, 2009.  REUTERS/Robert Galbraith

A view of the Hewlett Packard headquarters in Palo Alto, California November 23, 2009.

Credit: Reuters/Robert Galbraith

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(Reuters) - Hewlett-Packard Co HPQ.N and attorneys representing shareholders have agreed to settle litigation over its troubled $11.1 billion acquisition of British software company Autonomy Corp, according to a source familiar with the negotiations.

Under the terms of the settlement, involving three lawsuits, the attorneys for the shareholders have agreed to drop all claims against HP’s current and former executives, including CEO Meg Whitman, board members and advisers to the company, the source said.

The exception to that will be former officials at Autonomy. As part of the agreement, the shareholders' attorneys will assist HP in pursuing claims against Autonomy's co-founder and former CEO Michael Lynch, its former chief financial officer Sushovan Hussain, and potentially others related to Autonomy, the source said. The precise nature of such claims and when HP might file them could not be learned.

The settlement, which followed mediation, is expected to be announced as soon as Monday. The source said it is likely to be signed before Monday.

HP took an $8.8 billion impairment charge in November 2012 for its purchase of Autonomy only just over a year earlier, with more than $5 billion of that linked to what HP said at the time were "serious accounting improprieties, misrepresentation and disclosure failures."

The size of the loss, and the speed with which it occurred, marks the deal as one of the most disastrous done by a major company in recent years.

In particular, sources close to an HP investigation into the matter say that the technology giant believes that Autonomy’s results and prospects were made to look much better than they were.

Lynch, has consistently denied HP’s allegations, saying HP is blaming him for its own failure to manage Autonomy after the acquisition.

A spokesman for Lynch said that "we continue to reject HP's allegations." He said it appears that Whitman will be using a large sum of HP’s money to avoid explaining in court why she made the November 2012 allegations regarding Autonomy. "We hope this matter will now move beyond a smear campaign based on selective disclosure and HP will finally give a full explanation,” the Lynch spokesman added.

Hussain has not responded to calls and emails. His lawyer, John Keker, a founding partner of Keker & Van Nest LLP in San Francisco, did not respond to requests for comment.

SHARED RESULTS OF PROBE

Shareholders had sued HP board members and executives, accusing them of breaching their fiduciary duties and wasting corporate assets. The lawsuits sought corporate governance changes at HP, attorneys’ fees, and the ability to pursue damages claims against those responsible for the acquisition.

HP has shared the results of its investigation into accounting questions at Autonomy with attorneys representing the shareholders, the source familiar with the negotiations said.

One of the law firms representing shareholders in the settlement, Robbins Geller Rudman & Dowd LLP, declined to comment. The other firm, Cotchett Pitre & McCarthy LLP, was not immediately available for comment.

The attorneys representing shareholders will receive fees for helping HP pursue any further claims, the source said. Additional terms of HP’s settlement with shareholders are unclear.

HP's allegations of accounting improprieties, misrepresentation and disclosure failures at Autonomy have prompted an investigation by the U.S. Securities and Exchange Commission and the Federal Bureau of Investigation, as well as the UK's Serious Fraud Office.

The U.S. authorities have asked for more documents and interviewed several witnesses in recent weeks, sources familiar with the HP investigation said.

Representatives of the FBI and the SEC declined to comment. The SFO said its probe was "very much in progress.”

It is unclear if the investigations by the authorities in the U.S. and UK will lead to action against any parties involved in Autonomy or HP’s deal to acquire it. At the end of March, HP also settled a lawsuit that accused the personal computer maker's former management of defrauding shareholders by abandoning a business model it had long touted. In that case, the company agreed to pay shareholders $57 million.

The lawsuit was filed after former HP CEO Leo Apotheker shocked investors on August 18, 2011 by announcing plans to refocus the company on business services and products, which included the Autonomy purchase.

(Reporting by Nadia Damouni, Casey Sullivan and Paul Sandle; Additional Reporting by Dan Levine; Editing by Martin Howell)

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Comments (1)
Edtech wrote:
From Inside HP….So the Board wants to go after Lynch when they themselves approve of, and support current HP Sr. VP’s and VP’s that “manipulate” or flat out lye and hide critical facts from the street during briefings. Or hide bad new to ensure they get bonuses. Or they support Sr VP’s who hire family members and pay them hundreds of thousands of dollars, and they support VP’s that make up untrue statements about employees and lie to HR (with HR’s support) to get the employees terminated…..and we can go on and on.

Would be nice to see Meg clean up her own act (and house) before she goes after others. But this matches the current HP Sr. management theme – hide anything bad and if it is in fact bad blame someone else even if you have to lie to save your paycheck.

Besides she and board knew what Autonomy was before they bought…don’t let them tell you otherwise. Those of us on the inside know better.

Jun 27, 2014 3:11pm EDT  --  Report as abuse
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