Hewlett-Packard and shareholders reach settlement in suit over Autonomy deal

San Jose Mercury News (CA) |

July 01--sjohnson@mercurynews.com

PALO ALTO -- In a victory for Hewlett-Packard, the tech giant said Monday it has tentatively reached a settlement in a federal shareholder lawsuit over its ill-fated purchase of British software company Autonomy, which absolves HP's executives of wrongdoing.

Under the deal -- which must be approved by U.S. District Judge Charles Breyer in San Francisco -- the shareholders' lawyers will assist HP in pursuing legal claims against former Autonomy CEO Michael Lynch and Shushovan Hussain, Autonomy's former chief financial officer. All claims against HP officials would be dismissed. However, the proposed settlement doesn't affect several other shareholder lawsuits against HP, which are pending in federal court.

HP has been widely criticized for ignoring red flags when it paid $11 billion for Autonomy in 2011. For years before that, analysts and others had raised doubts about the software company, and HP in November 2012 wrote down Autonomy's value by $8.8 billion.

That prompted some of its shareholders to file suit, claiming the Palo Alto company's executives misrepresented how much prior checking they did on Autonomy, exaggerated the importance of Autonomy's technology and delayed publicly acknowledging Autonomy's problems months after learning of them.

In its defense, HP claims it was misled about the British firm's worth because of "accounting improprieties, misrepresentation and disclosure failures" by Autonomy's executives. The U.S. Department of Justice, the Securities and Exchange Commission, and the U.K.'s Serious Fraud Office all are looking into HP's charges. In addition, Air Force investigators have filed similar accusations against Autonomy officials, seeking to bar them from doing business with the military.

"From 2007-2011," the Air Force said, "former Autonomy senior management engaged in numerous accounting and sales practices designed to deceive analysts, investors and potential purchasers into believing that Autonomy could, and would continue to, generate margins and revenues that it could not ultimately sustain due to such practices."

Michael Lynch, Autonomy's former chief executive who was fired by Hewlett-Packard in May 2012, could not immediately be reached for comment Monday. But he has repeatedly denied any wrongdoing, saying HP's assertions stem from a misunderstanding of the business accounting procedures used by foreign-based companies.

On Friday, following news reports that a settlement in the shareholder suit was immanent, a representative for Lynch and his management team said, "We continue to reject HP's allegations, and note that over recent months a number of documents have emerged that prove (HP CEO) Meg Whitman misled her shareholders. We hope this matter will now move beyond a smear campaign based on selective disclosure and HP will finally give a full explanation."

Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.

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