Despite a continuing uproar over his company’s acquisition by Hewlett-Packard (HPQ), the CEO of British software-maker Autonomy said in an interview that he’s confident the $10.3 billion deal will help HP expand its business in software, computer hardware and even printing systems.
But even as he sought to ease the controversy that erupted when the deal was announced last month, Autonomy CEO Mike Lynch stepped into a new imbroglio this week when he disputed Oracle (ORCL) CEO Larry Ellison’s claim that Autonomy had unsuccessfully shopped itself to Oracle before landing at HP. Oracle promptly accused Lynch of lying or showing “a very poor memory,” although Lynch stood by his account.
The public war of words is part of a bitter rivalry between Oracle and HP, which had hoped the Autonomy acquisition would boost its efforts to compete in the growing market for software that helps businesses analyze digital and online data.
The high price of the deal, however, was widely criticized after it was announced last month. Controversy over the acquisition and other recent moves led HP’s board to remove then-CEO Léo Apotheker and replace him with Meg Whitman last week.
Still, Whitman publicly endorsed the Autonomy deal when she was named CEO. And Lynch said this week that in conversations with Whitman, who will be his new boss, and with HP Executive Chairman Ray Lane, “they very much reiterated that the fundamental strategy for doing the deal still stands.”
Autonomy’s software helps companies identify patterns in so-called “unstructured” data, including emails, phone calls and even video. That’s a much bigger and faster-growing sector than the financial records and other information that fits in the rows and columns of a traditional “structured” database, according to Lynch.
Working with other programs, Autonomy’s software can help businesses identify sales opportunities or resolve problems, for example, when a customer phones a call center with a question or complaint, Lynch said. “People forget that customers don’t send you database entries,” he added. “They ring you up or send out tweets.”
While experts agree the technology can be a valuable addition to HP’s commercial products, analysts also questioned how long it will take for HP to recover an investment that’s 10 times Autonomy’s annual revenue.
Even after Whitman’s endorsement, Deutsche Bank analyst Chris Whitmore said in a recent report that the deal’s “rich” price “is likely to destroy shareholder value” for HP investors. Jason Maynard of Wells Fargo Securities said in a note that HP still lacks other “building blocks” of software that would make Autonomy’s products useful to HP customers. “We still don’t think HP has a credible strategy,” he added.
Lynch, however, said the software can help HP increase sales of its other products. He said the two companies are already cooperating to make sure Autonomy’s technology works with software from another recent HP acquisition, Vertica, that tracks structured data.
HP may eventually produce hardware systems or self-contained “appliances” that are specially designed to run Autonomy’s software, he said. Oracle has used that strategy in combining its software with computer hardware from its purchase of Sun Microsystems.
Autonomy’s software can also be integrated with document management systems that HP sells to customers who use HP’s printing and copying hardware, Lynch suggested. He also said HP could reap additional income from providing tech services to companies that use Autonomy’s software.
While defending the $10.3 billion price tag, Lynch cited a comment Whitman made about the deal last week. “The best answer, probably, is to move forward,” he said. “As Meg said, ‘It is what it is.’ “
But in a sign the controversy isn’t over, Lynch denied that Autonomy had previously offered itself to Oracle, as Ellison asserted during a talk with analysts last week.
“At least to my knowledge and to Autonomy’s knowledge, that’s not true,” Lynch told this newspaper, adding that he couldn’t know if Autonomy was ever mentioned by an investment banker or other third party.
Ellison made his assertion in response to a question about unstructured data, while arguing that Oracle’s approach to the technology is better than Autonomy’s. The Oracle chief said his company rejected an opportunity to buy Autonomy because the price “was absurdly high.”
After Lynch denied offering his company to other suitors, in multiple interviews this week, an Oracle spokeswoman reported that Lynch and investment banker Frank Quattrone met in April with Oracle President Mark Hurd and Oracle’s top official for acquisitions, Douglas Kehring. Oracle later released a copy of a financial presentation that it said Quattrone and Lynch showed to the Oracle executives. Quattrone is known for advising companies on acquisition deals.
While an Oracle spokeswoman said the meeting was clearly held to discuss a possible sale, Lynch insisted in a statement that the discussion was about software products. An Autonomy representative later released a statement, attributed to Quattrone, that said the presentation was sent to Hurd in January “for the purpose of our independently pitching Autonomy as an idea to Oracle” and that it was not used in the April meeting.
Quattrone’s office did not respond to a request for comment.
Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey.
