Meg Whitman: Mike Lynch's conduct during HP's Autonomy takeover was 'completely unnacceptable'

Whitman claims that Lynch only informed her of impending quarterly revenue shortfalls at Autonomy at 'the eleventh hour'

Former HP CEO Meg Whitman told London's High Court yesterday that the conduct of Mike Lynch was "completely unacceptable" during HP's acquisition of Autonomy in 2011.

Whitman added that she regretted saying she was "happy to throw Léo [Apotheker] under the bus" following HP's disastrous $11 billion acquisition of the British software firm Autonomy. Apotheker was the CEO of HP who 'masterminded' the horribly botched takeover.

Lynch remained adamant that Autonomy should be kept at arms-length from the rest of HP

It was Whitman's first testimony in the $5 billion civil fraud case in London's High Court.

In March, the case against ex-Autonomy CEO Mike Lynch opened in London, with HP accusing Lynch (and ex-CFO Sushovan Hussain) of fraudulently inflating Autonomy's valuation prior to its sale to HP.

The two men, however, deny the claims. Lynch has filed a counter-claim against HP for at least $125 million in damages over a series "misleading and unfair" public statements about his role in the alleged accounting irregularities at Autonomy.

Whitman was a member of HP's board that approved the deal, struck in August 2011. However, just one month later, HP removed Apotheker from his post and appointed Whitman as the new CEO of the company.

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In December 2012, Whitman sent an email to then chief communications officer, Henry Gomez, stating that she was "happy to throw Léo under the bus in a tit for tat", after reading a news story where Apotheker said that HP board members also shared responsibility for the disastrous acquisition.

In court, Robert Miles, the QC representing Lynch, asked Whitman if she was shirking "collective responsibility" by accusing Apotheker. "It was a moment of anger and disappointment about what had happened here, and I shouldn't have said it," Whitman replied.

A spokeswoman for Apotheker told the court that the Autonomy deal had the full support of the HP board of directors, and that the deal was endorsed with one voice on the basis of supposedly thorough due diligence.

Commenting on Lynch's insistence on keeping Autonomy non-integrated, Whitman said: "During his entire time at HP, Dr Lynch remained adamant that Autonomy should be kept at arms-length from the rest of HP. ln retrospect, I believe this was his way of keeping HP from closely examining his company and discovering his and Mr Hussain's fraud.

Many of the problems he complained about to be typical of the day-to-day challenges of running a large and complex business

"Nothing that Dr Lynch complained of then (and continues to complain of now) was a particularly difficult or impactful issue. ln fact, I consider many of the problems he complained about to be typical of the day-to-day challenges of running a large and complex business in a highly competitive market.

"Most of the issues both arose and were resolved in the first few weeks after the Autonomy acquisition closed. And, even taken together, those issues could not have come close to explaining Autonomy's severe financial underperformance in the first half of 2012," she told the court.

"Thus, by February 2012, Autonomy had missed its revenue goal for its first quarter with HP and Dr Lynch was not conducting himself as the seasoned executive I expected. If anything, Dr Lynch became difficult to do business with and more challenging to manage.

The second quarter miss was much more alarming to me than the first because, not only was the shortfall much larger, Dr Lynch also failed to inform me of it until the eleventh hour

"I began to wonder whether there were more deeply rooted problems at Autonomy. I accordingly requested the due diligence that was performed on Autonomy before the acquisition closed in an effort to better understand what might be going on.

"HP's second quarter was scheduled to end on April 30, 2012. On the afternoon of Sunday, April 29, 2012 - the day before the close of the quarter - I received an email from Dr Lynch informing me that Autonomy would significantly miss its revenue target for the quarter.

"I was completely blindsided by this email as it was the first time I heard that Autonomy was likely to wind up far short of the mark for this quarter. I expected that if Autonomy - or any other business unit at HP, for that matter - had fallen materially off pace, I would have been warned about it weeks earlier so that I could deploy resources from the rest of HP to try to help close the gap."

"The second quarter miss was much more alarming to me than the first because, not only was the shortfall much larger, Dr Lynch also failed to inform me of it until the eleventh hour - completely unacceptable conduct for any leader.

"Accordingly, I asked Ms Lesjak to take a careful look at the numbers and also dispatched a team of senior HP executives (which included Mr Veghte and Mr Binns) to London to meet with Autonomy's leadership and diagnose what had gone wrong - a process I later referred to as a 'deep dive'."

The trial continues.

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