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The Latest Hewlett-Packard (NYSE: HPQ) Deal Disaster

Computer maker Hewlett-Packard Co. (NYSE: HPQ) reported fourth-quarter earnings yesterday (Tuesday), surprising the market with an $8.8 billion charge against its acquisition of British software company Autonomy.

HP alleges that $5 billion of the charge is related to fraud and misrepresentation by Autonomy management prior to the acquisition, a charge that former Autonomy CEO Mike Lynch vehemently denies.

This is the second multi-billion dollar charge to earnings resulting from an acquisition in as many quarters. In the third quarter, Hewlett-Packard took a nearly $11 billion charge on its acquisition of Electronic Data Systems (EDS), which failed to perform up to expectations.

Hewlett-Packard acquired Autonomy in the summer of 2011 as part of former CEO Leo Apotheker's strategy to move HP away from its reliance on computer hardware and increase revenue from the sale of high value-added software. Apotheker was forced out of Hewlett-Packard only three weeks after Autonomy was acquired and HP's new CEO, Meg Whitman, has put less emphasis on the software side of the business as she tackles the much bigger problem of restructuring the company's product lineup and its global strategy.

During Tuesday's conference call, Whitman talked about Autonomy, saying, "The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations that occurred prior to HP's acquisition of Autonomy and the associated impact on the expected financial performance of the business over the long term."

"These improprieties were discovered through an internal investigation after a senior member of Autonomy's leadership team came forward following the departure of Mike Lynch on May 23. Based on this information, HP initiated an intense internal investigation into the allegations, including a third-party forensic review of Autonomy's historical financial results."

Whitman concluded, "HP has contacted the SEC's enforcement division and the U.K.'s Serious Fraud Office. We have requested that both agencies open criminal and civil investigations into this matter. In addition, HP intends to seek redress against various parties in the appropriate civil courts to recoup what we can for our shareholders."

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