Case Study of a Failed M&A—The Role of Environment in HP’s Acquisition of Autonomy

The public had mixed opinions about the HP-Autonomy merger. Some shareholders felt that HP overpaid to acquire Autonomy, a sentiment picked up by the media. Many of the shareholders’ concerns were valid and stemmed from the lack of transparency concerning the deal.

Public Acceptance

Public Perception. The Cherokee have a proverb stating, “Listen to the whispers and you won’t have to hear the screams.” The quote is used to remind those in charge to be mindful of public feedback. Companies can receive feedback in a myriad of ways including increase (decrease) in share price and positive reactions from investment analysts and journalists. The rise of social media has increased the ability for the public to voice its opinions for and against cross-border deals. While most expressed interest for such a large acquisition, there were others expressing disapproval and confusion. One twitter user humorously noted, “Today at my kids (sic) kindergarten orientation the most OH convo was #HP/Autonomy and how it made little sense.”1 While many tend to discount the opinions of the layman, they can be an effective source of feedback: the public’s opinion was spot-on in the case of HP and Autonomy.

Overpayment.Just one month after HP announced its plan to purchase Autonomy, the media produced a plethora of reports revealing the public’s opinion that HP paid too much for Autonomy. The expression of this opinion can be seen by the fall in HP’s stock price throughout HP’s courting of Autonomy: “Between August 18, 2011 (the date the deal was announced) and October 3, 2011 (when the deal was consummated), HP’s market cap plummeted by $15 billion from $58.5 to $43.5 billion.”2 These opinions perhaps foreshadowed the write-down of Autonomy’s value just over a year after its acquisition. One writer simply suggests that Autonomy was not worth the value HP paid; “He overpaid for what is essentially a second-tier software company.”3 Another writer was more aggressive in his opinion by saying, “Of course it was absurdly high. An 80% premium to where Autonomy was trading in London! In fact, here is how newly-installed HP CEO Meg Whitman responded when asked if her predecessor overpaid: ‘It is what it is.’” 4 Whitman seemed to have the same mindset as a writer who said, “While most agree that HP overpaid for Autonomy, the deal is done and it’s got to make the most of it.”5 Since Autonomy had shown increasing growth over periods prior to the acquisition announcement, one writer mentioned that, “…HP, desperate to do a deal, simply overpaid for a company that was going to struggle to maintain its sales and earnings momentum and was deluded about its abilities.”6 This writer not only thought HP overpaid, but also thought that Autonomy would struggle to keep their sales as high as they had been.  Clearly, most of the public agreed that HP overpaid for Autonomy. This united opinion of overpayment may have been a warning for HP to work hard to create the value it expected from Autonomy.

Shareholders. A major indicator that the merger between HP and Autonomy might not work out came from the concerns of HP shareholders.7 Part of the reason that shareholders voiced opinions opposing HP’s acquisition decision relates to the overall lack of transparency HP demonstrated in its briefings to the public. “HP’s failure to communicate convincingly the benefits of the deal to its shareholders, as demonstrated by the significant fall in share price on the day of the announcement, was the start of the transaction’s downfall.”8 Shareholders were confused as to why HP purchased Autonomy when HP’s focus in the past was hardware and Autonomy was a software company. “‘I haven’t really seen a significant long-term vision from HP around Autonomy,’ she said. ‘This company acquisition is a completely different focus from HP’s roots.’”9 Shareholders were not made aware of the benefits Autonomy would provide and HP did not provide information as to the direction it was going in purchasing Autonomy. Because of this lack of communication, shareholders were against this merger from the beginning. In hindsight, HP should have heeded the public’s criticism of the proposed merger. While they possessed little ability to drop the tendered offer, they certainly could have used the feedback to guide their integration strategy. Instead, they failed to “hear” what the public was saying, and suffered as a result.

Previous: Case Study of a Failed M&A—The Role of Management in HP’s Acquisition of Autonomy

Next: Case Study of a Failed M&A—The Role of Accounting and Finance in HP’s Acquisition of Autonomy

  1. Patel, S. [SameerPatel] (2011, August 22). Today at my kids kindergarten orientation the most OH convo was #HP / Autonomy and how it made little sense. That’s #svlife for you. [Tweet]. Retrieved from http://twitter.com/SameerPatel/status/105501089423572992
  2. Damodaran, A. (2012, November 26). Retrieved from aswathdamodaran.blogspot.com: http://aswathdamodaran.blogspot.com/2012/11/hps-deal-from-hell-mark-it-up-and-write.html
  3. Ghosh, P. (2011, September 21). Hewlett-Packard: Is Leo Apotheker to Blame for Company Woes? Retrieved from http://www.ibtimes.com/hewlett-packard-leo-apotheker-blame-company-woes-211567
  4. Primack, D. (2011, September 29). Dear Oracle: Please Buy Us (signed Autonomy). Fortune Magazine. Retrieved from http://fortune.com/2011/09/29/dear-oracle-please-buy-us-signed-autonomy/
  5. Darrow, B. (2011, November 10). HP Dithering Puts it Behind the Eight Ball in Mobility. Gigaom. Retrieved from https://gigaom.com/2011/11/10/hp-dithering-puts-it-behind-the-eight-ball-in-mobility-cloud/
  6. Reece, D. (2012, May 24). Hewlett-Packard Can’t Say it Wasn’t Warned About Autonomy. The Telegraph. Retrieved from http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/electronics/9287273/Hewlett-Packard-cant-say-it-wasnt-warned-about-Autonomy.html
  7. Jennings, M. M. (2013). What HP Missed About Ethical Culture in Acquisition of Autonomy. Corporate Finance Review, 35-38.
  8. Taylor, C. (2011, August 18). Why HP is betting the farm on Autonomy. Retrieved from https://gigaom.com/2011/08/18/hp-betting-farm-on-autonomy/
  9. Hall, K. (2012, June 21). The Future of Autonomy–One Year On. Retrieved from http://www.computerweekly.com/news/2240158453/The-future-of-Autonomy-one-year-on