I wasn’t on the inside — but I’m not sure that was the case.

HP hired a software CEO (Leo Apotheker) from SAP (a huge software company) to turn HP into a newer-age huge software company.

How do you do that — quickly?

You go buy something. It’s the only way. And it has to be something big. Little tiny acquisitions don’t move the needle. So …

You make a target list. Not everything is for sale. And even some of the stuff that is for sale — is too expensive. You can’t “afford” Salesforce (the obvious choice) because its market cap is too high. So you keep going down the list.

Somewhere down the list was Autonomy. I highly doubt it was at the top of the list. The price was way too high based on revenues and growth, yes. But. Autonomy was a publicly traded company in the right space with significant revenues. Its market cap is what it is. And you have to pay a premium to that to acquire the company, otherwise the shareholders will not sell. Was an 80%+ premium too much? For sure. But sometimes deal dynamics drive premiums higher than normal.

So IF you wanted HP to accelerate this strategic shift, on paper, there are worse ideas. My guess is it was somewhere between #5 and #8 on Best Ideas of Big Companies To Buy to Rapidly Accelerate Our Shift to Being a True NextGen Software Company. Sometimes, you have to play the cards on hand.

The real remaining question is if there was fraud in how they presented their revenue, not just to HP, but to all their public shareholders. Was the stock price inflated by illegal accounting techniques?

If so, ideally, HP would have caught this in its due diligence. However, even there, most executives would assume the financials of a publicly-traded company are at least reasonably accurate. Someone’s job would be to do a deep dive here, but you’d assume 99% likelihood the financials are GAAP-accurate and vetted.

My real guess is this deal just happened too quickly. The HP CEO at the time felt driven, or under pressure, to make something happen now. The board didn’t love the deal. But it was a deal to buy revenue and buy a new foothold in a market, which you do sometimes. So the CEO pushed it through. And everyone assumed the financials were accurate, since Autonomy was public and audited for years.

It’s hard to do enough diligence in a big M&A deal if you don’t have time, and there often isn’t as much time as you’d think. An 80% premium to buy a public company is high, but not unheard of, and not really crazy if there are multiple bidders.

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