Settlement of suit OKd in HP’s buy of Autonomy
A federal appeals court has upheld Hewlett-Packard’s settlement of a lawsuit over its $11.1 billion acquisition in 2011 of British software maker Autonomy, a settlement that rewrote the Palo Alto information technology giant’s internal review procedures in hopes of avoiding another such financial fiasco.
The purchase, promoted as a buildup of HP’s software business, instead forced the company to take a whopping $8.8 billion write-down, a loss it blamed on misrepresentations by Autonomy. The British firm denied the accusation, but last year its former U.S. chief executive officer, Christopher Egan, was penalized more than $923,000 by the Securities and Exchange Commission for actions related to the sale.
In a second case, Autonomy’s former chief financial officer, Sushovan Hussain, faces criminal fraud charges in San Francisco federal court for allegedly inflating his company’s value. Hussain has pleaded not guilty.
Hewlett-Packard fired its chief executive, Leo Apotheker, a month after the sale and replaced him with Meg Whitman, who is leaving in February. Under her tenure, HP split into two companies — the enterprise technology and services firm Hewlett Packard Enterprise, headed by Whitman, and the personal systems and printing business HP Inc. Hewlett Packard Enterprise merged its software business last year with another British company, Micro Focus, in a deal valued at $8.8 billion.
Hewlett-Packard shareholders filed multiple lawsuits over the Autonomy deal. One, a class action against the company, was settled in June 2015 for $100 million, payable to those who bought company stock over a 14-month period in 2011 and 2012 and suffered investment losses. Another, filed in the name of the company against directors and officers, was the subject of the latest ruling.
In a 3-0 decision Tuesday, the Ninth U.S. Circuit Court of Appeals approved a plan negotiated by Hewlett-Packard and lawyers for the plaintiff shareholders to create structures at both of the new companies to oversee future transactions.
They include a riskmanagement committee of senior corporate executives, new rules for review of mergers and acquisitions, conflict-ofinterest policies for outside advisers, and more education and training for personnel involved in financial acquisitions.
The new rules “will help create a corporate environment where the issues complained of (in the lawsuit) are less likely to recur,” lawyers for shareholders supporting the settlement said in a court filing.
The settlement included nearly $9 million for the lawyers, but no additional compensation for shareholders. Dissident shareholders also protested the settlement’s release of HP officers and directors from any liability to the company.
The “purported corporate governance reforms ... were under way in any event” and did not require an agreement to shield top company officials, lawyers for one objecting shareholder said in court papers. They called for the appointment of an independent “special master” to decide whether the suit should proceed.
But the appeals court, upholding a 2015 ruling by U.S. District Judge Charles Breyer of San Francisco, found the settlement reasonable.
The court said Hewlett-Packard settled the case after an “exhaustive investigation” by a newly formed committee that lasted 14 months. The committee concluded that HP’s officers had not been “grossly negligent” and that the company should either settle the suit that had been filed in its name or move to dismiss it, the court said.
The panel said the company’s governing board at the time of the sale was composed almost entirely of outside directors and that no directors benefited personally from the transaction. The court cited Breyer’s conclusion that the new corporate procedures, which shareholders could enforce by filing their own suits, had the potential to “actually change governance in the operation of Hewlett-Packard.”
Lawyers for the opposing sides could not be reached for comment.