May 16th 2013
Hewlett Packard (HP) shareholders are suing the company for $1 billion over the "vastly overvalued" acquisition of the British software firm Autonomy.
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According to claims brought against the multinational, HP tried to pull out of its $11.1 billion takeover of Autonomy before the deal closed. Board members face accusations that they were made aware of countless "red flags" about Autonomy and of ignoring damaging evidence.
The class action suit was filed at the San Francisco District Court and accuses eight defendants – including HP CEO Meg Whitman, former CEO Léo Apotheker, former chairman Ray Lane, and Autonomy founder Mike Lynch – of conducting "cursory due diligence on a polluted and vastly overvalued asset." It claims directors "breached their fiduciary duty of loyalty and good faith" by failing to conduct "proper due diligence."
At the time, Whitman was a member of the board that approved the Autonomy deal and is accused of knowing or disregarding the many red flags, including opposition from HP CFO Catherine Lesjak.
Whitman and Lane are also accused of ignoring evidence from whistleblowers and hiding their full concerns about the deal.
According to the claims, they employed "devices, schemes, and artifices to defraud" shareholders into buying the stock before eventually admitting HP had overpaid in November 2012.
At the same time, HP took an $8.8 billion write-down against the $11.1 billion it had paid for the company it bought from Lynch in 2011.
HP then accused its acquired UK subsidiary of "accounting improprieties, disclosure failures, and misrepresentations." Lynch has since denied any financial impropriety.
Big 4 accountants KPMG and Deloitte also were dragged into the action by an HP shareholder for their role in HP's purchase.
Whitman said that during due diligence, KPMG, which had been hired to review the work of Deloitte as auditor, did not uncover any problems. However, the lawsuit alleges that KPMG denied being hired to audit Deloitte and said it merely performed "a limited set of non-audit-related services."
According to court documents, Apotheker was egged on by "self-interested auditors, Wall Street bankers, and other investment advisors who facilitated HP's severely reckless pursuit of Autonomy in exchange for nearly $100 million in fees."
Lane is also alleged to have asked HP financial advisors Barclays Capital and Perella Weinberg Partners to check whether HP could back out of the deal.
The new lawsuit is led by Dutch pension fund PGGM Vermogensbeheer and is being brought by Ramzi Abadou, a partner at law firm Kessler Topaz Meltzer & Check, LLP.
A hearing is expected to follow later this year.
Source: This article was previously published on our sister site in the United Kingdom.