HP's stock plunged $1.59, or nearly 12 percent, to finish Tuesday at $11.71. The shares haven't closed this low since October 2002 when HP was still facing a shareholder backlash over its acquisition of rival Compaq Computer.
That deal has turned out better than the acquisitions HP has made during the past five years under three different CEOs. In that time, HP has spent more than $40 billion to buy dozens of companies. In a reflection of how poorly the biggest of those deals have performed, HP's market value has fallen to just $23 billion. That's about 70 percent less than what HP was worth in June 2007 when the first iPhone went on sale.
In the last three months, HP has absorbed nearly $17 billion in non-cash charges to account for the diminished value of its 2008 acquisition of technology consulting service Electronic Data Systems and its 2011 purchase Autonomy. Last year, HP took a nearly $900 million hit for its purchase of device maker Palm Inc.
Other deals for computer networking gear maker 3Com ($2.7 billion deal), data storage service 3Par $2.4 billion) and software maker ArcSight ($1.5 billion) are working out better, so far.
But the Autonomy deal never seemed to make sense to anyone outside HP.
"Something smelled bad about it from the beginning," said 451 Research analyst Alan Pelz-Sharpe, who has been following Autonomy since the company went public in 1998.
Autonomy, which was based in Cambridge, England, had been known for a "dog-eat-dog" sales culture that drove employees to do whatever it took to hit their quarterly targets or risk incurring the wrath of CEO Mike Lynch, Pelz-Sharpe said. "It was never a happy company," the analyst said. "It was always a place where people were frightened to speak out."
Whitman fired Lynch in May because she was frustrated with Autonomy's poor results since the acquisition, which closed less than two weeks into her tenure as HP's CEO. She said she had no idea that she would uncover conduct that led her to allege Autonomy had been fabricating sales before she ousted Lynch. In a statement to the Financial Times, Lynch denied any wrongdoing at Autonomy.
By the spring of 2011, Autonomy was desperately seeking a buyer, according to Oracle Corp. CEO Larry Ellison, whose company has become a bitter HP rival. In a series of statements last year, Ellison said Lynch and investment banker Frank Quattrone tried to persuade Oracle to buy Autonomy. The most serious pitch came in an April 1, 2011 meeting, according to Ellison, who described Autonomy's asking price as "absurdly high."
Quattrone, who faced charges of misconduct for his handling of IPOs during the Internet boom in the late 1990s, and Lynch have acknowledged meeting with Oracle executives. But they have denied offering to sell Autonomy.
HP wound up buying Autonomy at a price that was 64 percent above the company's market value. On the same day the Autonomy deal was announced, Apotheker also revealed he was scrapping HP's attempt to sell mobile devices running on Palm's software. He also said he was mulling a possible sale of the PC division. All those developments stunned investors, leading to a one-day drop of 20 percent in HP's stock price.
Even if HP's board had doubts about the Autonomy deal after Apotheker's exit, the company probably had little choice but to consummate it because the laws of England make it difficult to renege once an offer is made, Pelz-Sharpe said. "About the only way you can do it is if you can prove fraud has been committed."
AP Technology Writer Barbara Ortutay in New York contributed to this story.