Whatever the rights and wrongs of the Autonomy case, the US firm clearly ignored widespread scepticism about the deal in its rush to get into software
Blame Mike Lynch. Blame Deloitte, Autonomy's auditors. Blame the investment banking advisers. Blame Hewlett-Packard itself. All those conclusions have been advanced this week after HP wrote off the colossal sum of $8.8bn (£5.5bn) against its $11bn purchase a year ago of software firm Autonomy.
So who is to blame? Well, Lynch and Deloitte are innocent until proven guilty, and we (as well as the US Securities and Exchange Commission and the Serious Fraud Office) will have to wait to see what HP offers as hard evidence to support its claim that there was a deliberate attempt to inflate Autonomy's financial performance. Lynch denies all the allegations and, at the moment, this electric tale is stuck in the territory of claim and counterclaim.
For what it's worth, Lynch does himself no favours when he complains that HP managed the firm he founded in 1996 in a cack-handed manner. The US acquirer may well have been incompetent, but that's a separate issue. This is an argument about the accuracy of Autonomy's accounts. That's a dispute about facts – and if HP has sound evidence, Deloitte is in deep trouble.
Yet one can still say that HP was monumentally silly to pay $11bn for Autonomy on the basis of what appears to have been a bog-standard inspection of the goods and a couple of "fair value" opinions from banking advisers Barclays Capital and Perella Weinberg. HP's chief executive Meg Whitman, as she attempted to explain why the alleged improprieties had not been discovered during pre-acquisition scrutiny, replied: "In the end, you have to rely on audited financials and we did."
Rubbish. HP did not have to rely solely on the audited financials. It could have crawled over contracts, interrogated Autonomy's customers and suppliers and dug as deep as it wished. There was every reason to do so, since respected analysts had been prodding Autonomy's accounts for years and making unflattering comments. In the world of software, what constitutes a sale is always a contentious issue. Anybody paying $11bn for a company with an annual turnover of $870m had a duty to their shareholders to satisfy themselves that they knew precisely what the composition of Autonomy's sales were and when revenues were recognised.
Indeed, HP had a double duty given its appalling acquisition record. The US company has had a reverse Midas touch for years, incurring heavy write-offs against its purchases of Electronic Data Systems and Palm.
The acquisition of Autonomy was part of a last-gasp attempt by then chief executive Léo Apotheker to reinvent HP as a broadly based technology company with a bigger software presence, instead of a boring old computer maker. It looks as if Apotheker and the HP board were bewitched by the idea of Autonomy as a sexy software outfit that could rebrand their company as a "growth" stock, as opposed to a business stuck in its PC past.
Whether or not Autonomy's management was engaged in a "wilful attempt" to mislead, HP's top folk appear to have been wilfully deaf to the sceptical views about Autonomy. That's unforgivable. Larry Ellison at Oracle – nobody's fool – was screaming that the purchase price was "absurdly high" so, in effect, HP's directors were staking their reputations that they knew better. Apotheker has departed (with a hefty payoff) but several of the survivors on the HP board will surely have to follow.
Autonomy was always a baffling company for non-tech outsiders to understand. Bayes's theorem didn't succeed in proving the existence of God in the 18th century but apparently the mathematics behind it was perfect in the 21st for making sense of so-called "unstructured" data. Don't worry about the details of how the software works: just remember that God helps those who help themselves – and HP didn't.
Only Osborne's credit is at stake from loss of triple-A status
Britain held onto its cherished AAA credit rating through the winter of discontent, Black Wednesday and the credit crunch, when a fair chunk of the financial sector was in such a dire state it had to be nationalised. But as the economy continues to underachieve, depressing tax revenues, and with George Osborne highly likely to have to ditch one of his two fiscal rules at the autumn statement, analysts at HSBC have predicted a downgrade may be on the cards.
For Osborne, that would be a political catastrophe: he has staked his reputation not only on tackling the deficit, but on keeping the nation safe from the turmoil on the world's financial markets. Stick with me, the chancellor's message has been, or the ratings agencies will lose confidence in us.
While Osborne's reputation would be in tatters, however, HSBC's view is that the impact for the economy would be relatively slight. They suggest the gilt market would "largely shrug off" a one-notch downgrade. As they point out, ratings are partly relative: investors with money to lend will tuck it away somewhere, and with the fiscal cliff looming and the euro crisis far from over, the UK hardly looks like the riskiest place. It also has the advantage – unlike Greece – of being able to issue its own currency: it is a "true sovereign", as they put it. Certainly, the US downgrade, though it rocked the equity markets, had little impact on its bond yields.
The one impact HSBC does expect from the loss of our cherished AAA status – apart from the dent to Osborne's pride – is that sterling would be likely to slide. But with net trade so far failing to make the positive impact on growth the coalition had hoped for, a weaker pound would hardly be a disaster. Indeed, Sir Mervyn King has acknowledged that the strengthening currency is one of the risks to the economy's performance in the coming months. So as Moody's prepares to issue its verdict on the UK's rating next year, perhaps the only person who should be panicking is the chancellor.
Lonely supermarkets this Christmas
Tesco launched a Christmas charity appeal last week. Not to get shoppers through its doors, but for customers to donate tinned food and other groceries to needy families. However, it is shaping up to be a tough festive season for consumers and retailers alike as the ghosts of Christmasses past – such as high food and energy prices – return to haunt the checkouts. Nowhere will that be more apparent than on Christmas Day itself, after this year's run of bad weather conspired to devastate crops of brussels sprouts, parsnips and potatoes, triggering price increases and a scrabble to import. The recent monthly industry snapshot from Nielsen painted a picture of subdued spending as Britons hold back despite a barrage of advertising;, money off coupons and promotions from the majors in the last week of October alone, Nielsen says, Waitrose spent £750,000 on a TV ad blitz while Tesco lashed out just shy of £2m across TV and print. They'll have to hope shoppers feel like treating themselves, as well as helping their needier neighbours.
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