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December 10, 2012

Dell turned down Autonomy: report

Michael Dell said it was "obvious" Autonomy was overpriced

By Steve Evans

Dell turned down Autonomy before the UK company’s ill-fated acquisition by HP, founder and CEO Michael Dell has said.

In an interview with The Sunday Telegraph, he said it was clear to his company that Mike Lynch’s business, which focuses on enterprise search, was overpriced. Cambridge-headquartered Autonomy eventually sold for $11.1bn.

"It was shopped to us as well," he told the paper, adding that Dell didn’t give it much consideration "at that price. That was an overwhelmingly obvious conclusion that any reasonable person could draw."

Dell went on to suggest that the acquisition of Autonomy would have been too big of a risk for his company, despite their acquisition spree over the last few years.

"The premium that you pay is in some way a measurement of the risk that you’re willing to take on," he said. "If you pay a small premium relative to the market’s then current opinion, you are actually not taking on very much risk, but if you pay an unbelievably large premium, you are taking on an unbelievably large risk."

Dell is the second company to go public with the revelation that it said no to Autonomy before HP bought it. Larry Ellison said the company was shopped to Oracle but executives there thought the company was overpriced, even at its $6bn market value. Those comments, made shortly after the acquisition was announced, resulted in an ugly war of words between Lynch and Ellison.

Autonomy was eventually sold to HP for $11.1bn to form the central component of HP’s shift from a hardware player to a software and services company. The acquisition has been dogged by controversy over not only the price HP paid but the performance of Autonomy since the buy.

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Autonomy founder and CEO Mike Lynch left HP in May 2012, along with the vast majority of former Autonomy management, after HP criticised its performance.

However the biggest controversy was the recent accusation by HP that Autonomy had been cooking the books. It wrote down $8.8bn of the deal, $5bn of which was put down to accounting improprieties.

The company said it had evidence of "accounting improprieties, misrepresentations and disclosure failures" that were designed to "inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition by HP."

"These efforts appear to have been a wilful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal," HP said.

Mike Lynch demanded that HP publicly disclose what evidence it had, and suggested that HP’s accusations were a move by the company to cover up its mismanagement of Autonomy after the deal. "Can HP really state that no part of the $5 billion write down was, or should be, attributed to HP’s operational and financial mismanagement of Autonomy since the acquisition?" he asked in an open letter to HP’s board.

HP responded by saying that the matter will be settled in court.

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