The Dog that failed to bark (Advisers who failed to advise) – HP write-down of USD 8.8 Billion after an acquisition

(Based on media reports)

 IN AUGUST 2011, when HP said it would buy Autonomy, a British software company that specialises in analysing “unstructured” data, for $10.3 billion, many people thought the Californian maker of computers and printers had paid over the odds. On November 20th HP agreed that it had—and claimed that it had been duped. It said that it was taking a charge of $8.8 billion related to Autonomy in its fourth-quarter results, of which more than $5 billion was “linked to serious accounting improprieties, misrepresentation and disclosure failures”. Some of Autonomy’s former managers, it said (naming no individuals), had inflated the company’s figures before the acquisition.

When Hewlett Packard acquired Autonomy, some 15 different financial, legal and accounting firms were involved in the transaction — and none raised a flag about what HP said  was a major accounting fraud.

HP Chief Executive Meg Whitman, who was a director at the company at the time of the deal, said the board had relied on accounting firm Deloitte for vetting Autonomy’s financials and that KPMG was subsequently hired to audit Deloitte.

HP had many other advisers as well: boutique investment bank Perella Weinberg Partners to serve as its lead adviser, along with Barclays. The company’s legal advisers included Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board.

On Autonomy’s side of the table were Frank Quattrone’s Qatalyst Partners, which specializes in tech deals, as well as UBS, Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America. Slaughter & May and Morgan Lewis served as Autonomy’s legal advisers on the deal.

While regulators in the United States and the United Kingdom, as well as the Federal Bureau of Investigation, are likely to spend many months if not years investigating what happened, legal experts said on Tuesday that it wasn’t clear if any of the advisers would ultimately be held liable.

“The most logical deep pocket would be the acquired firm’s auditors, who should have allegedly caught these defalcations,” said James Cox, a professor at Duke University law school who specializes in corporate and securities law. Since both auditors missed the problems and it appeared to have taken HP a while to catch it after it took over Autonomy, the auditors may have a strong defense.

“You can have a perfectly sound audit and still have fraud exist,” he said. A Deloitte UK spokesman said the company could not comment and would cooperate with any investigations.

The law firms and the bankers will likely argue that they were not hired to review the bookkeeping and had relied on the opinion of the auditors, securities law experts said.

Multiple sources with knowledge of the HP-Autonomy transaction added that the big-name banks on Autonomy’s side were brought in days before the final agreement was struck. These sources said the banks were brought on as favors for their long relationships with the companies, in a little-scrutinized Wall Street practice of crediting — and paying — investment banks that actually have little do with the deal.

Plaintiffs lawyers said they were taking calls from investors about HP. Darren Robbins, a San Diego-based plaintiff lawyer who represents shareholders, said the tech icon appears to have spent billions on a shoddy company without undertaking the proper due diligence, and thus misrepresented its finances to investors. “I think they have serious troubles,” he said.

But plaintiff lawyers may have difficulty bringing so-called derivative lawsuits against professional services firms, said Brian Quinn, an M&A professor at Boston College Law School. In those cases, plaintiff lawyers can sue third parties, such as auditors, on behalf of HP — but they must convince a judge that HP’s board is unfit to pursue those claims itself. In this situation, though, HP’s board disclosed the alleged fraud itself, Quinn said. Even if the bankers and lawyers escape any legal problems, they could suffer a reputational hit.


Don’t Touch That while Driving!

“If you put a 20-year-old driver behind the wheel with a cell phone, his reaction time is the same as that a 70-year-old driver who is not using a cell phone,” says a reputed psychology professor. “It’s like instantly aging a large number of drivers.”

Many a times, you might have come across vehicles in front of you acting a bit strange – moving in a slow pace to the detriment and irritation of vehicles behind, swerving to a side and almost colliding with another vehicle, not responding quickly to changing traffic signals etc. When you look closely at such vehicles, you are most likely to see its driver either talking on his cell phone or texting! Most of time, such drivers are pretty young and most startling is the fact that they do not display any anxiety about the near miss which was caused by them. They are so engrossed in their conversations or texting!

This will make you wonder whether it is worth taking the risk of an accident, losing a limb or even life just for using cell phones while driving!

Cellular phones or mobiles are a necessity in our lives.   People take their phones everywhere they go. These days, phones have gotten even more complex and we use them as a means for communication by voice, text, sound, and video. Checking emails on smart phones is a hobby – no! It is more than a hobby, it is an addiction!

Because cell phones are considered such a necessity by many people today, the issue has risen regarding the use of phones while driving.

Cell phone use  while driving is the No. 1 cause of distracted driving which is taking heavy toll of life in the recent times. About 6,000 deaths and half a million injuries are caused by distracted drivers every year in the United States of America, where such statistics are available.  Such accidents have grown over the years in proportion to growth in use of cell phones and texting!

Recently, a reputed medical association released a report detailing the impact of cell phone use on a person’s ability to safely operate a motor vehicle.  Using a cell phone while driving causes a significant visual distraction as well as reduction in the driver’s cognitive abilities.  Even using hands-free devices significantly contributes to slower reaction times behind the wheel.

The report found that the use of a cell phone while driving leads to:

  1. Change in average driving speed;
  2.  Slower brake reaction time;
  3.  Slower response times to traffic light changes; and
  4.  Reduced visual monitoring of mirrors and instruments, with some drivers abandoning them entirely.

Multi tasking, as one may say, is order of the day and one cannot survive in this fast changing and extremely competitive world without multi tasking. But all this is true only if one lives to see the day. Multi tasking at the cost of limbs or life, either yours or someone else’s is not worth it. One has to chose the tasks carefully while multi tasking!

While most of the countries have brought strict laws against using cell phones while driving, the experience shows that it is difficult to enforce such laws. Unlike in drunken driving, where it is easy to establish the level of alcohol in one’s blood, the Traffic Cop should have sharp eye sight and a lot of luck to catch a driver texting while driving! In case of any accident, it is pretty difficult to establish use of cell phone by the driver.

This brings us to the question why can’t we use technology to curb this menace? Why don’t we have mobile signal jammers around driver’s seat in vehicles? Or at least why don’t we have driver seats which pinch whenever driver uses a cell phone? Seats which pinch at un expected places may probably be more effective!  I am sure that the person coming out with innovative mechanism to curb use of cell phones while driving will become a strong contender for a Nobel Prize!

While we await such inventions and awarding of Nobel Prize, there are things which we can do:

  1. Let us firmly resolve that we will not touch that cell phone while driving, not even using it in hands free mode;
  2. If required to make a call or respond to a call while driving, we should move into a convenient parking slot before touching that cell phone
  3. We should also convince our family members not to use cell phones while driving and if one comes across a driver using cell phone, while one is travelling as a passenger in that vehicle, one should immediately caution the driver, who so ever he is! (Even if he is your boss or your wife!)