A Hewlett-Packard primer on how not to do a deal
By Richard Beales and Robert Cyran
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
If it werenât so tragic for a once-revered technology pioneer, the story of Hewlett-Packardâs purchase of Autonomy would be a comedy of errors. If nothing else, itâs a case study of what to avoid when tempted to contemplate a big takeover.
Donât do a giant deal when thereâs chaos in the boardroom.
In August 2011 when the all-cash transaction was announced with an $11.7 billion price tag, Leo Apotheker had been HPâs chief executive for less than a year. Despite the revolving door to the corner office since the departure of Carly Fiorina in early 2005, some members of the dysfunctional board hadnât even met him before he was appointed. He didnât survive to see the deal completed.
Donât let a venture capitalist-director call the shots.
Partly because of the instability at the top of executive management, HP board members got unusually involved in the companyâs strategy. One who pushed the Autonomy deal was Marc Andreessen, a Silicon Valley venture capitalist. He may be a top-notch ideas guy and know something about starting up companies, but business planning for a mature company doesnât seem to be his strong point.
Donât pay a big premium in a hurry.
HPâs purchase of Mike Lynchâs software creation was pegged at a 64 percent premium to Autonomyâs market price. Yet the Silicon Valley giant pushed ahead on a tight schedule, relying heavily on public information. A quick Google search would have shown several analysts and fund managers questioning whether Autonomyâs books were trustworthy. What HP calls accounting improprieties have now contributed to an $8.8 billion writedown. There should at least be a trade-off between the premium – more like 30 percent in a typical M&A deal – and how intensive due diligence can be. Oh, and if youâre going to overpay, try to do it in your own overpriced stock, not in cash.
Listen to your finance chief.
Cathie Lesjak – HPâs chief financial officer, who served as interim CEO before Apotheker showed up – went against her bossâs wishes and made a presentation to the board explaining why Autonomy was too expensive. HPâs writedown isnât only about accounting problems. The company simply paid too much. Itâs harder to listen to abrasive competitors, but Oracle went public after the deal was announced to say that it had looked at Autonomy but found even its then market value of $6 billion too expensive.
Donât buy a company from Frank Quattrone.
The tech banker and Qatalyst boutique founder is a great salesman, pulling in top dollar selling companies like Motorola Mobility to Google and, of course, Autonomy to HP. But his record suggests that acquirers should think twice – the chances are they are overpaying.