A U.K. court has awarded Hewlett Packard Enterprise (HPE) more than £700 million ($900m) in a fraud dispute with the estate of late tech entrepreneur Mike Lynch.

The U.S. IT giant had sought damages in the billions of dollars from Lynch’s estate following its botched takeover of British software firm Autonomy, which it had initially valued at $11.7 billion before writing off some $8.8 billion.

While Lynch was acquitted of fraud in the U.S. in relation to the takeover in 2022, a civil case in the U.K. sided with HPE, finding that it had overpaid when it acquired the firm in 2011, when the company was Hewlett Packard (HP) and not two separate companies.

Earlier this week, a U.K. High Court judge, Justice Robert Hildyard, ruled that the estate must pay HPE $940 million. The amount covers the difference between the actual price HP paid for the business and what it would have paid if they had known its true financial state.

A complex case

In 2022, Justice Hildyard ruled that HP was misled in the lead-up to its acquisition of Autonomy.

In his prior judgement, he stated “Autonomy’s true financial position and performance had not been properly and accurately disclosed, and that had it been so, HP would not have proceeded with its acquisition of Autonomy at the bid price.”

But instead of the deal collapsing, he found HP would have proceeded with the deal, only at a significantly lower price.

This latest ruling, however, centers on what HP would actually have paid had it had accurate financial information from Autonomy.

The court was tasked with calculating an appropriate valuation based on the difference between the bid price that HP initially agreed to and the price that it would have been prepared to agree to in order to ultimately determine its loss.

A ruling was expected in September 2024, but Lynch, along with several family members and friends, was killed just a month prior after his superyacht, The Bayesian, sank off the coast of Sicily. They had been celebrating his U.S. acquittal, with some of his defense team among those aboard the doomed vessel.

The superyacht was lifted from the seabed only last month, with Italian investigators examining the wreckage.

Lynch had a pending statement on the potential outcome prior to passing, in which he had always intended to appeal the outcome. He described HPE’s damages claim as “not just a wild overstatement – misleading shareholders – but off the mark by 80%.”

“HP acquired Autonomy for $11.6 billion, and [the] judgment is a view that Autonomy’s actual value was not even 10% below the price HP paid,” the posthumous statement reads.

“This result exposes HP’s failure and makes clear that the immense damage to Autonomy was down to HP's own errors and actions.”

While the judge ultimately sided with HPE, he stopped short of validating the scale of damage the company once claimed.

Justice Hildyard concluded that Autonomy would have been valued at £23 per share had its accounts been properly stated – a 9.8% reduction from the £25.50 HP actually paid in 2011.

Much of that difference, the court found, was not in hidden fraud but in accounting assumptions and the aggressive premium HP was willing to pay at the time.

“The assessment is not a matter of expertise, but one of fact to be made by the Court,” Hildyard wrote, describing the task of unwinding the deal price as “a multifactorial process.”

Crucially, the court’s decision also undercuts HPE’s long-held narrative around the $8.8 billion write-down it took on Autonomy just a year after the acquisition.

In public, HPE had blamed much of that charge on “serious accounting improprieties.”

But the judge found that nearly 80% of HPE’s loss had nothing to do with the misconduct, casting serious doubt on how the company had framed the fallout to shareholders.

While the court accepted that Autonomy’s reported financials overstated its size and growth – including improperly bundled hardware sales and misclassified revenue – it also concluded that HP’s due diligence failures and internal dysfunction played a significant role in the disastrous outcome.

Justice Hildyard wrote: “I consider that HP's claim was always substantially exaggerated: and I have concluded that there is more than a grain of truth in Dr Lynch's submission ... that when ... HP announced that it was writing down the value of Autonomy by $8.8 billion and attributed some $5 billion to alleged fraud, the figure was not based on a detailed analysis.

“Rather, it was predominately calculated by reference to the perceived need to reduce the carrying value of some of HP's assets in order to take account of the diminution of HP's market capitalisation following a fall in HP's share price; and (to quote Dr Lynch's written closing) ‘Autonomy was lined up to take a disproportionate hit.’”

A bit of history

The dispute dates back to 2011, when HP acquired Autonomy for $11.7 billion in a deal that would go on to become one of the worst enterprise IT acquisitions of all time.

Autonomy was founded in 1996 by Lynch alongside Richard Gaunt. It was a software company focused on enterprise applications, with offerings covering data analytics, information governance, and data protection.

It quickly became one of the big hopes for the U.K.'s fledgling technology sector, with Lynch described by local press as the British Bill Gates.

Following an aggressive expansion, Autonomy would quickly snap up rivals like Verity, Neurodynamics, and Blinkx. The firm also spent some £20 million to have its logo plastered on the front of jerseys worn by English Premier League side Tottenham Hotspur in the early 2010s.

Then, in August 2011, HP announced plans to buy the firm. Initial reports put the bid at $10 billion, a figure that would rise to $11.7 billion when it closed later that October.

But it was all downhill from there.

Lynch would leave the business the following May, following a significant revenue dip, replaced by then-EVP of HP software, Bill Veghte.

Just a few months later, in November 2012, HP reported accounting issues, citing “outright misrepresentations” at the British firm, with executives at Autonomy accused of concealing evidence of gross financial mismanagement.

In what would become an $8.8 billion accounting charge, HP would later claim that Autonomy deliberately inflated the company’s value by mischaracterizing the revenues of its flagship Idol software, falsely grouping transactions that were worth tens of millions of dollars for clients who had no intention of selling on its solutions.

Lynch had argued that the issues were at the fault of HP, claiming “internecine warfare” in how it ran the business.

The spat would eventually become the focus of investigations by the FBI, the U.S. Securities and Exchange Commission, and the UK’s Serious Fraud Office.

While Lynch was acquitted in the U.S., Sushovan Hussain, Autonomy's chief financial officer, would serve five years in prison after being found guilty of fraud in 2018.

Shareholders would also go on to sue HP after the value of their shares in the company plummeted following the fallout of the deal.

The acrimonious marriage came to an end in 2016. HP later split into two companies, forming HPE, with the latter spinning off most of its software segment in an $8.8 billion deal to British software firm Micro Focus in 2016, which included Autonomy.

Micro Focus would go on to be acquired by the Canadian firm OpenText in a $6 billion deal in 2022.