Did Autonomy truly swindle Hewlett-Packard (NYSE:HPQ) to the tune of a whopping $8.8 billion write down? According to Bloomberg, the FBI is now involved after the SEC asked for assistance in one of the biggest M&A scam accusations to ever rock Silicon Valley.
How Does the Accusation Add Up to an $8.8 Billion Write Down?
“More than $5 billion of the charge relates to accounting missteps, including improperly categorized hardware, Hewlett- Packard said. The rest is linked to Hewlett-Packard’s share value and projections that the deal won’t meet expectations, said the company, which also forecast fiscal first-quarter profit that missed analysts’ estimates,” reports Bloomberg.
CHEAT SHEET Analysis: Does “Honest Accounting Govern Hewlett-Packard’s Books”?
One of the core components of our CHEAT SHEET Investing Framework requires companies to have zero evidence of accounting manipulation. In this case, Hewlett-Packard fails our test.
Although Investor Relations will spin this accounting issue as a scam perpetrated by Autonomy, anyone with a top accountant knows HP’s accounting firm charged an insane amount of money to supposedly conduct due diligence to insure a scam like this could not happen. Therefore, we are forced to conclude HP’s accountants did a subpar job, and there’s no telling how many more mistakes they’ve made recently.
How Will This Scandal Affect Hewlett-Packard’s Stock?
As we’ve learned from decades of investing, when smoke rises from a company’s accounting division, run for the exit as if you see blazing fires. In other words, SELL or STAY AWAY, then ask questions later.
Hewlett-Packard is already in the middle of a mind-numbing mess. Apple (NASDAQ:AAPL) has eaten a critical amount of market share via Macs and iPads. Plus HP’s stock is down to a decade low. If shares keep falling, they will reach levels not seen since 1994. Yes, 1994. Don’t go back to the 90’s.
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