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Technology: UBS was warned on Autonomy, says analyst: Company hostile to those who questioned figures None of 15 firms involved in deal raised concerns
[November 21, 2012]

Technology: UBS was warned on Autonomy, says analyst: Company hostile to those who questioned figures None of 15 firms involved in deal raised concerns

(Guardian (UK) Via Acquire Media NewsEdge) UBS, one of the banks which advised Autonomy on its disastrous sale to Hewlett Packard, was given a detailed briefing about the alleged accounting irregularities at Britain's largest software company before the deal was negotiated - a transaction that has wiped $8.8bn (pounds 5.5m) from the US company's balance sheet over the last couple of days.

Paul Morland, a leading City analyst who started raising red flags about exaggerated performance claims at Autonomy as early as 2009 and has been one of the company's most vocal critics, was invited to meet a member of the UBS team in advance of HP's $10.3bn (pounds 6.5bn) offer for Autonomy in August last year.

"UBS knew I was negative so they asked me in to understand what the negative arguments were," said Morland. "They concluded they were not negative enough not to take on the mandate. You can understand why they came to that conclusion when they had Mike Lynch [the co-founder of Autonomy] telling them one thing and me telling them another." None of the 15 different financial, legal and accounting firms involved on both sides of the transaction publicly raised concerns about Automony's books. UBS, which declined to comment, made an estimated $5.4m from the deal.

Speaking out about Autonomy was a difficult stance to take. Analysts have described how Lynch and his senior managers were quick to hit back at those who questioned the numbers. They were barred from attending quarterly results meetings, blacklisted so that company staff were forbidden to talk to them, and pressure was put on managers to silence their criticism.

But while Morland was one of a hardcore asking awkward questions, many analysts at the large banks had buy recommendations on Autonomy.

A look back at the notes published in the 12 months leading up to the sale, compiled by, shows Bank of America Merrill Lynch and Goldman Sachs, both of whom advised Autonomy, were consistently positive. UBS turned from neutral to positive in February 2011. Barclays Capital, who adivsed HP, Credit Suisse and RBC Capital Markets were also recommending their clients buy the stock.

"Our job, if we've got any moral good in us, is to ensure the efficient allocation of capital," said Morland. "If the quality of analysis is worse you will get more misallocation of capital. That is a bad consequence and that might be what happened here." Autonomy's chief operating officer, Andrew Kanter, wrote to Morland's bosses at Astaire Securities insisting on corrections and retractions to his published research. One letter said: "Autonomy likes to encourage robust debate amongst analysts," but it went on to accuse Morland of "knowing dissemination of false information into the marketplace".

Morland described how he was one of three analysts - Daud Khan at JP Morgan Cazenove and Roger Phillips at Merchant Equity Partners were the others - who were not allowed to ask questions at a particularly fraught results presentation.

At one point Khan was banned from attending results announcements for a year. Pressure was also put on technology specialists. Khan did not respond to requests to comment.

Alan Pelz-Sharpe, of IT experts 451 Research, was banned from speaking to company staff. He said: "I was essentially blacklisted by them, so in theory nobody there could talk to me. If I wrote anything critical I would have a threatening note come back saying my report was riddled with inaccuracies and there was no way it could go to press." Lynch said yesterday there was no sense in the claim by HP that more than $200m of improperly recorded revenue led to a writedown worth billions. "After being ambushed by all this yesterday, I've had a chance to look at some of the things that they're saying - it just doesn't add up," Lynch said in an interview with technology site All Things D. "HP is looking for scapegoats, and I'm afraid I'm not going to be one of those." (c) 2012 Guardian Newspapers Limited.

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