HP’s Lynch mob demands $5.1bn over Autonomy

The legal battle between computing firm Hewlett-Packard (HP) and Cambridge spin-out Autonomy’s co-founder Mike Lynch is shifting up a gear after the US-based firm launched a bid for $5.1bn in damages.

HP filed the lawsuit in London’s High Court both against Lynch and Autonomy’s former chief financial officer Sushovan Hussain, following a long running dispute over the $11.1bn sale of Autonomy to HP in 2011. In response, Lynch is launching legal action of his own against HP for making “false and negligent statements”, and is seeking damages in excess of £100m ($149m), also in the UK.

Calling the HP lawsuit part of an ongoing ‘smear campaign’ against them, the Autonomy pair said in a statement: “The former management of Autonomy announces today they will file claims against HP for loss and damage caused by false and negligent statements made against them by HP on 20 November 2012 and in HP’s subsequent smear campaign. Former Autonomy CEO Mike Lynch’s claim, which is likely to be in excess of £100 million, will be filed in the UK.”

The battle between Lynch and HP began shortly after HP’s acquisition of Autonomy, one of two Cambridge spin-outs along with Arm to be valued at over $10bn, four years ago. Launched in 1996, Autonomy would become the UK’s most successful software firm by 2010. Its big data technologies attracted HP to the acquisition table, leading to its 2011 buyout. However, the deal at a premium of 79% over market price was widely described as absurdly high and a botched strategy shift on HP’s behalf by critics at the time, and was even objected to by HP’s chief financial officer. The deal was also overseen by then HP CEO Léo Apotheker, who guided the firm for just over a year and led the company through the loss of over $30bn in market capitalisation before his departure around the time the deal was signed. Culture clashes between the two firms emerged shortly after the ink on the deal had dried, with Lynch forcibly vacated from Autonomy’s CEO chair in May 2012 after a significant drop in revenue.

This was followed by HP writing $8.8bn off the value of Autonomy, leading to HP’s lowest stock price in decades, which the firm claimed was due to “accounting improprieties, misrepresentations and disclosure failures” by Lynch and his management colleagues. Lynch responded by saying the failings were on HP’s side due to their running of Autonomy. Three shareholders in HP also filed their own lawsuits against the HP for the fall in share price.

The conflict led to a joint investigation between the UK’s Serious Fraud Office (SFO) and the US Securities and Exchange Commission (SEC) and Federal Bureau of Investigation (FBI). A proposed settlement was thrown out by a US district court judge after Autonomy argued was collusive and attended to divert scrutiny away from HP’s responsibility. And then at the turn of the year, the SFO closed its investigation into the deal stating that the likelihood of a successful prosecution was low. Probes conducted by the FBI and SEC are still continuing.

Lynch, now managing the $1bn Invoke Capital fund, has also provided documents questioning HP’s write down of Autonomy, seen by news provider Financial Times. Lynch said the documents show HP placed Autonomy deals into different columns based on whether the firm were booked correctly under UK accounting standards or whether they met US accounting standards used by the US-based HP. The document allegedly shows that HP believes $350m of Autonomy deals between 2010 and 2011 were recorded improperly, with a further $252.4m marked as suspicious but with no conclusive proof they failed to meet UK standards, with an additional $83.6m worth removed for not meeting US accounting standards.

At the time, Lynch said: “The way HP has labelled columns in this document shows Meg Whitman’s attempt to blame Autonomy and HP’s former management for her own mismanagement is no longer tenable.”

HP responded: “The same fertile imagination that was behind a massive fraud is apparently still hard at work making up stories. We would encourage Mr. Lynch to spend as much time as possible with the authorities.”

Due to the unprecedented size of the damages claimed against a UK executive, it is expected that Lynch will see HP in court to clear both the legal challenge and his name, although a court date is yet to be set.