HP Said to Be in Settlement Talks Over Autonomy Lawsuit

Feb 19, 2014 5:33 pm ET

(Updates with law professor in fifth paragraph.)

Feb. 19 (Bloomberg) -- Hewlett-Packard Co. has begun talks with shareholders’ lawyers on a possible settlement of litigation over its $8.8 billion writedown of the Autonomy Corp. acquisition, a person familiar with the matter said.

Lawyers for the company and investors are meeting this week to discuss how HP intends to proceed with lawsuits alleging that the company, its board, Chief Executive Officer Meg Whitman and other executives ignored warnings about accounting irregularities at Autonomy and failed to properly vet its finances before the 2012 acquisition, according to court filings.

The attorneys met yesterday and are scheduled to meet today and tomorrow, HP’s lawyers said in a Jan. 17 court filing.

Michael Thacker, an HP spokesman, declined to comment. Mark Molumphy, an attorney for investors, didn’t immediately answer an e-mail seeking comment about the talks.

A financial settlement with investors might be covered by HP’s insurers, or the company might seek to resolve the case with an agreement that it join forces with shareholders to sue individuals such as former HP and Autonomy executives, said Deborah DeMott, a Duke University law professor.

Michael Lynch, who shareholders say made $800 million from the sale of Autonomy, could be an attractive target for a revised lawsuit as “a lot of his money could be alleged to be a consequence of fraud,” DeMott said.

‘Open, Transparent’

Lynch has denied there were accounting improprieties. He said this week in response to reports that HP managers received information about Autonomy’s accounting months before the writedown that Autonomy was “open and transparent with our auditors.”

HP, its current and former executives, board and advisers, and Lynch were sued in shareholder complaints filed on behalf of the company in 2012 after HP announced it was taking the writedown on the value of British software maker Autonomy, a $10.3 billion deal engineered by Whitman’s predecessor in 2011. More than $5 billion of the writedown was the result of accounting practices at Autonomy, Hewlett-Packard said.

The company’s shares fell to a 10-year low, and HP lost about $3 billion in market capitalization on Nov. 20, 2012, the day it announced the charge related to Autonomy.

HP shares are up 74 percent in the past 12 months, compared with a 20 percent gain by the S&P 500 index.

The company has said it was the victim of fraud by Autonomy’s management and employees who manipulated its finances to mislead investors and potential buyers.

Committee Conclusions

A review committee composed of three board members looking into investors’ allegations concluded that Leo Apotheker, when he was chief executive officer, and some professionals hired by the company were negligent in connection with the Autonomy purchase and Autonomy employees defrauded the company, according to a Feb. 10 complaint by investors represented by attorney Richard Greenfield of the New York law firm Greenfield & Goodman.

The lawsuit is separate from the so-called derivative shareholder complaints filed by in 2012 on behalf of the company. HP also faces a securities fraud suit filed by investors in 2012. A federal judge in that case dismissed investor claims against Apotheker, Lynch and three other executives while allowing claims to proceed against Whitman and the company.

Quick Resolution

HP’s board, seeking “to protect its members at the time of the Autonomy acquisition” has “determined to try and quickly settle all of the Autonomy claims” in the pending derivative lawsuits, Greenfield said in the complaint. Settlement talks are “ongoing,” Greenfield said by phone today.

The person familiar with the talks spoke on condition of anonymity because the talks are private.

The shareholder lawsuit is In re Hewlett Packard Shareholder Derivative Litigation, 12-06003, U.S. District Court, Northern District of California (San Francisco). The Greenfield lawsuit is Copeland v. Apotheker, 14-cv-00622, U.S. District Court, Northern District of California (Oakland).

--With assistance from Ian King in San Francisco. Editors: Charles Carter, Mary Romano