Published November 28, 2012
When Meg Whitman became chief executive of Hewlett-Packard Co. (HPQ) in September 2011, I offered her some friendly advice in a column that began: "Congratulations, Meg Whitman. You are next in line for the H-P boot."
I assured her she eventually would be fired like Leo Apotheker, who lasted all of 11 months, and several other predecessors, who were similarly sacked after embarrassing episodes I need not recount again.
I gave Ms. Whitman a list of ideas to ward off her inevitable fate for as long as possible. This turned out to be the crucial one:
"Back out of Apotheker's $10.3 billion deal to buy British enterprise-software company Autonomy Corp. Everyone says the deal is overpriced and depletes H-P's coffers. H-P will need the cash for tough times ahead."
I am no technologist. I possess no great financial training. I am just a simple scribe who believes that $10.3 billion is a lot of money to blow on a deal that the last bungling CEO wanted to do.
The breakup fee was only 1% -- a mere hundred million bucks and change. This would have been like taking a batch of unwanted electronics parts back to the supplier and paying a restocking fee. Instead, Ms. Whitman carried on with Mr. Apotheker's folly.
Then came the big, pre-Thanksgiving, turkey surprise. On Nov. 20, H-P said it would write down the value of its Autonomy acquisition by $8.8 billion. It blamed more than $5 billion of that on "serious accounting improprieties, disclosure failures and outright misrepresentations" at Autonomy. In other words, H-P claimed Autonomy had fleeced it like a hapless Enron stockholder.
Former Autonomy chief Mike Lynch denied these allegations, blaming the sharp decline in Autonomy's value on H-P's mismanagement, which he said included running off the key personnel who actually sell and provide Autonomy's services.
On Tuesday, Mr. Lynch asked H-P to detail its accusations against former top Autonomy executives. H-P responded that it has launched an "intense internal investigation" and "uncovered extensive evidence" against former Autonomy employees in the matter.
Anyone can see that this is going to be a messy fight. Clearly, it is time for me to come to Ms. Whitman's aid with my free consulting services once again. Maybe this time she will listen to some of my thoughts:
* There are many constituencies that large corporations can shaft out of money, including customers, employees, retirees and shareholders. Courts are perennially clogged with these sorts of claims. The cleanest corporate shafting, however, comes when a company sells itself to another company for an inflated price. Usually, managements are too proud to admit they were suckered, and smart enough to know that nobody really cares if they were.
* True or not, Mr. Lynch's argument that the Autonomy loss was due to H-P's mismanagement will be difficult to diffuse. H-P is a company that has lost more than $100 billion in market capitalization over the past five years. It did most of this autonomously, without Autonomy.
* H-P's history of paying way too much for companies dates back at least as far as its 2001 merger with Compaq. Over the summer, H-P wrote down its 2008 Electronic Data Systems Corp. acquisition by $8 billion. A reasonable person selling a company to H-P could assume that overpaying is how it prefers to do business.
* A reasonable person also could assume that a technology company would know all the tricks that technology companies play on their books, and then bid accordingly. Don't pretend you've never heard of a company dressing up sales for a deal.
* Don't sue Deloitte. Yes, Deloitte was Autonomy's auditor. And Deloitte gets accused of a lot of things, from helping Iran launder money to improper conduct in auditing the financial statements of the debacle known as Adelphia Communications Corp. But they probably have nothing to do with your own lack of "due diligence" in purchasing Autonomy.
* Don't sue the accountants, lawyers and investment bankers who made millions from this ill-fated deal. They get paid to do deals. What? Did you really think they'd advise against a deal if it were too much? The books of America's biggest companies are loaded with "goodwill," an accounting category for the millions and billions they overpaid in mergers and acquisitions. Big companies frequently take big write-downs on their deals. They don't whine about it. They just do it. And nobody seems to notice what these write-downs really are: Quantified admissions of failure.
* Take back whatever findings you filed with the U.S. Securities and Exchange Commission regarding Autonomy's alleged puffery. Does anyone at H-P really think the SEC has the resources to bother with accounting fraud claims? On Monday, SEC Chairman Mary Schapiro announced her plans to step down. She issued a statement highlighting her many accomplishments following the 2008 financial crisis--like cracking down on Ponzi schemes and insider-trading rings--but she offered few, if any, boasts about curbing accounting fraud at large organizations.
* Take back whatever you filed with Britain's Serious Fraud Office. Ask cast members from "Monty Python's Flying Circus" for directions to the Silly Fraud Office.
* Remember that Autonomy was your shopping spree, too. You voted to approve it as an H-P board member during Mr. Apotheker's brief yet destructive reign. You went forward with it when you took his desk. Now you've got buyer's remorse. But all this deflecting will only put you closer to the dreaded H-P boot.
* Take a bow. Despite this spectacle, your tenure has so far outlasted Mr. Apotheker's by three months. You're a real survivor, Ms. Whitman. Congratulations!
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at firstname.lastname@example.org or tellittoal.com)