Lawyers for HPE are seeking $4 billion (£ 3.17 billion) in damages from former Autonomy boss Mike Lynch and his ex-CFO Sushovan Hussain, after a court in the UK found the pair inflated the software maker's value ahead of its merger with HP.
HPE successfully sued Autonomy's founder Mike Lynch in the High Court of England and Wales back in 2022, and the British tech tycoon was later extradited to the US to face related criminal charges. Lynch is under house arrest in San Francisco pending a fraud trial over the takeover of Autonomy, while Hussain was sentenced to five years of prison time in the US in 2019.
This is all to do with HP's $11 billion acquisition of UK-based Autonomy in 2011, back before the super-corp split into HPE and HP Inc in 2015. After the merger, HP claimed it was misled over the true value of the enterprise search software maker – allegedly ripped off, in other words – and was forced to take an $8.8 billion writedown in 2012.
In the aftermath, HPE went after Lynch and Hussain, suing them in the UK in a civil case ahead of their extradition to the US to face criminal fraud charges. The High Court in London ruled Lynch and Hussain perpetuated an extensive fraud over a period of at least ten fiscal quarters during the run up to the acquisition. The cunning plan was to inflate Autonomy’s apparent software revenues and make the company appear to be a more valuable asset to acquire.
Although HPE "substantially succeeded" in proving its High Court case, the judge gave his opinion that the damages awarded would prove to be significantly lower than the $5 billion the venerable Silicon Valley biz was asking for. However, in the latest court hearing in London, HPE's lawyers presented documents that argue the org is entitled to $4 billion as a result of the losses incurred from the fraud.
Its valuation expert stated that, based on revised information, Autonomy would have been worth around $1 billion more than his estimates given at the trial, which therefore reduced his estimate of the loss to $4 billion.
Lynch is estimated to have a net worth of a billion quid.
The amount of damages that HPE is likely to be awarded could depend on several factors. One is whether the court decides that HP would have walked away from the transaction had it known the true value of Autonomy, or whether it would have proceeded anyway but insisted on a lower price.
Léo Apotheker, HP’s CEO during the period of the merger, is quoted in the document as saying that he would have sought an explanation from Autonomy’s leadership if he had discovered the discrepancies in its books.
“If, as seems most likely, the explanation I heard was not satisfactory, I have no doubt that I would have recommended to HP’s Board that it should abandon the deal,” he stated.
HP’s former chief financial officer admitted during the trial, however, that she had not read a due diligence report on Autonomy by auditors KPMG before the acquisition went through, as reported by The Register at the time. ®
Source: The register