Hewlett Packard and Autonomy (2011) 5 billion write-off

When the famed US technology firm Hewlett Packard sought to acquire UK enterprise software firm Autonomy in 2011 for 7 4 billion in 2011, it was hailed as the arrival of UK technology to the world stage Autonomy had pioneered an aggressive sales method to sell its big data analysis and predictive tools, which were all highly attractive to HP. When the deal was closed in October 2011. HP paid a premium of around 70% of the share's current price on the market HP was already leaving itself very little margin for error but despite the extravagant closing price, the deal was unanimously backed by the board directors of both HP and Autonomy

There were already red flags in this deal. In the two and a half years prior to the deal closing Autonomy's revenues were within 4% of analysts' expectations Such metronomic performance should have raised questions, particularly coming so soon after some of that decade's most well-known examples of financial fraud it has emerged subsequently (through the litigation which followed the deal), that HP's financial due diligence on the Autonomy deal consisted of four conference calls lasting approximately one and a half hours each Autonomy's defense in the litigation also claimed that HP were keen to close the deal on a certain date to distract from a negative earnings release. But shortly after the deal closed, it emerged that the aggressive sales methods used by Autonomy were marrored on its income statement. This extended to backdating purchase orders, and exaggerating buyers commitments. The fact that it had reached its sales targets every year was, according to HP, a case of accounting improprieties and misrepresentations

One year after the deal closed, HP wrote off an astonishing $8 billion on the deal. Autonomy said that it was nothing more than case of "buyer's remorse, and that would probably be putting it lightly. Although

it's difficult to see how any company could justify an acquisition of that size based on six hours of conference calls

In this context, answer the following questions Please quote examples or facts and figures wherever you can to justify your answer. You may refer to relevant web resources, but please answer as far as

possible in your own words 1. What went wrong in the deal that HP had to face such a big disaster? (5 marks)

2. How do you think that this could have been avoided?(7.5 marks)

3. What is a detailed information memorandum and why is it essential in a deal?(7.5 marks)