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Autonomy's Blood on Whitman's Hands Too

Stocks in this article: HPQ

NEW YORK ( TheStreet) -- After this morning's terrible earnings report and the revelation of accounting wrongdoings at its Autonomy unit, HP (HPQ) CEO Meg Whitman is in full damage control mode blitzing the business TV airwave.

There is a narrative that she's trying to present to the world:

  • Turnarounds are hard and messy
  • I let Mike Lynch go when I sensed issues at Autonomy (the former CEO)
  • We are very angry by these accounting wrongdoings and are doing our best now to clean them up
  • This was a deal done by my predecessor
  • I'm doing the best I can under the circumstances to turn this thing around

    There is some truth to this narrative. Leo Apotheker, HP's CEO before Meg, was hired by HP in September 2010. This was before Meg was on the board. And it was Leo who wanted Autonomy and convinced the HP board to pull the trigger on it in August of 2011.

    However, an inconvenient truth missing from Whitman's account is that she joined the HP board in January 2011. Her job as a director was to be a fiduciary for HP shareholders in overseeing Apotheker. She fully blessed his plan to divest the PC business as a director -- and then later reversed herself once she was CEO by saying it was important for the company to retain control of this business unit.

    Whitman was also the one to give the A-OK to the Autonomy deal. This was a deal that lots of other companies had looked at and passed on. Autonomy had already drawn a lot of interest from shorts.

    And yet Whitman didn't just green-light HP buying it for its current substantial market cap of $6 billion. She and the rest of the HP board approved paying an 80% premium to get control of Autonomy.

    It seems like, in hindsight, HP's board had a case of 3Par-itis. HP had gotten into a huge bidding war with Dell (DELL) over 3Par just prior to Apotheker being hired. Rather than face a similarly long and drawn out bidding war for Autonomy, HP tried to flex its muscles by paying a huge premium and scaring off other potential bidders.

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