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HP Investor Sues Whitman, Board Alleging Mismanagement

Hewlett-Packard Co. (HPQ) Chief Executive Officer Meg Whitman, the company’s board and former CEO Leo Apotheker were sued by an investor alleging that mismanagement and botched acquisitions have destroyed shareholder value.

Executives have failed “in their most fundamental stewardship responsibilities owed to HP,” resulting in a series of mishaps including bribery probes, the hiring and firing of Apotheker and an $8.8 billion writedown in 2012 of the Autonomy Corp. acquisition, shareholder A.J. Copeland said in a complaint in federal court in San Francisco.

The personal-computer and printer maker faces other shareholder lawsuits over Autonomy, and the board, seeking “to protect its members at the time of the Autonomy acquisition” has “determined to try and quickly settle all of the Autonomy claims,” according to the complaint.

Hewlett-Packard this month said accounting errors at Autonomy have led it to cut reported 2010 revenue at the software maker’s largest unit by 54 percent, adding fuel to the legal dispute over its purchase of Autonomy. Whitman and the company’s board are in the midst of a turnaround of Hewlett-Packard, which is poised for a third straight year of sales declines.

Board Committee

Company directors met to consider recommendations of a board committee established to review shareholder claims against management over the Autonomy acquisition, HP’s lawyers said in a Jan. 17 court filing. They will present the board’s decision on how to proceed with the lawsuit to shareholder attorneys next week, according to the filing.

Michael Thacker, a spokesman for Palo Alto, California-based Hewlett-Packard, didn’t immediately respond to a voice-mail yesterday message seeking comment on the shareholder complaint filed Feb 10.

Copeland’s lawsuit was filed on behalf of Hewlett-Packard as a so-called derivative complaint. He said the company didn’t substantively respond to a letter he sent in July describing his claims.

A 2011 lawsuit against Hewlett-Packard by Copeland alleging mismanagement was dismissed last year, according to court filings.

Earlier Cases

Shareholders have claimed in earlier cases that current and former top executives knew, or should have known, about shoddy accounting practices at Autonomy before buying the company for $10.3 billion in 2011.

Whitman, the only executive ordered by a federal judge to face allegations of misleading investors in an earlier shareholder lawsuit, contends the company was defrauded by Autonomy.

Fallout from the Autonomy deal included a shareholder rebuke that prompted Chairman Ray Lane to resign his position last year and two other directors to leave the board. Securities regulators in the U.S. and the U.K. began civil and criminal investigations into Hewlett-Packard’s allegations and shareholders filed a derivative suit on behalf of the company against its officers and directors, as well as securities-fraud class actions that also named the company’s auditors and financial advisers.

Hewlett-Packard bought Autonomy in a deal engineered by Whitman’s predecessor, Apotheker. A year later, Hewlett-Packard under Whitman said it would take the $8.8 billion writedown, largely because of what it said was falsified accounting at the software maker.

Period of Upheaval

Hewlett-Packard, which makes personal computers, servers and printers, is trying to move past a period of upheaval including declining performance and the departure of Apotheker and Mark Hurd as CEO before him.

Shares of the Palo Alto, California-based company gained 96 percent last year, making it the 17th best performer in the Standard & Poor’s 500 Index, which rose 30 percent. The stock had declined 45 percent in 2012 and 39 percent in 2011. Shares are up 5 percent this year.

Whitman and other Hewlett-Packard executives have said Autonomy under founder Michael Lynch misstated more than $200 million in revenue -- including booking sales of PCs and computer mice as software. Whitman has said Hewlett-Packard relied on financial results at Autonomy audited by Deloitte LLP and KPMG LLP. Lynch has denied accounting improprieties.

Claims in an earlier derivative case against Apotheker, Lynch, former Hewlett-Packard Chief Strategy and Technology Officer Shane Robison and other of the company’s managers were dismissed in November by U.S. District Judge Charles Breyer in San Francisco.

Breyer said in his Nov. 26 ruling that Whitman must face claims that statements she made in May and June of 2012 about Autonomy’s weak performance omitted that she knew accounting fraud was under investigation.

The new case is Copeland v. Apotheker, 14-cv-00622, U.S. District Court, Northern District of California (San Francisco). The 2011 case is Copeland v. Lane, 11-cv-01058, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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