Hewlett-Packard claims email exposes lies over deal

HP released an internal email to Mr Lynch warning in panicked language that sales of one of a profitable product line were collapsing

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Hewlett-Packard’s claims of fraud against the British IT  tycoon Mike Lynch over his actions while selling the US giant his software company has seen sensational new allegations made against him in a California court.

HP released an internal email to Mr Lynch from the former chief financial officer at Autonomy warning in panicked language that sales of one of its most profitable product lines were collapsing. 

HP claims the document supports its claim that Mr Lynch lied “to an extraordinary extent” about the strength of Autonomy’s financial performance while negotiating the sale – lies which HP contends persuaded it to pay $11.7bn (£7.1bn) for the company. The deal proved disastrous as Autonomy’s revenues collapsed. Hewlett-Packard wrote down the value of the business by $8.8bn just over a year later.

In the email, the finance head declares to Mr Lynch: “Really don’t know what to do Mike. As I guessed, revenue fell away completely yet SMS report shows massive activity… There are swathes of [sales] reps with nothing to do maybe chase imaginary deals. So radical action is required. Really radical, we can’t wait any more.”

HP claims that the “radical action” was the sale of the business. That was vigorously denied by Mr Lynch’s former management team, which said on its blog that the email had been taken out of context, and that revenues for that quarter had, despite the deals referred to in the message, been ahead of forecasts.

“It is not hard, when going through hundreds of thousands of emails to pick a misleading example if you are prepared not to release other emails around it,” they countered. They said the “radical action” had been the firing of unreliable sales reps, not the sale.

HP’s filing yesterday said: “HP did not miss the fraud at Autonomy because it wasn’t diligent enough. The problem was Autonomy executives had lied. Repeatedly.”

HP wants to settle damages claims against it from shareholders who feel its bosses, including its current chief executive Meg Whitman, breached their duty as directors in doing the deal. HP says it was duped by the Autonomy team. In turn, HP wants to sue the British group’s management and its auditor Deloitte, which signed off the accounts. The filings allege Deloitte did not reveal to HP during due diligence that it had disagreed with Autonomy’s management about its accounting. Deloitte denies any such wrongdoing and says any such case would be without merit.

The filings also allege that a list supplied by Autonomy management of its top 40 deals was misleading. It cites the example of one contract, to provide IT to the Vatican for digitising its library, which was never carried out. Autonomy denies allegations of fakery around the Vatican deal.

The Autonomy team responded that the business went bad  because of mismanagement by Ms Whitman and her executives.

The case continues.