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Some believe Oracle could be trying to depress HP's stock price to buy it

It's been a bewildering couple weeks for Hewlett-Packard, Comp. (HPQ), whose board fired unpopular German CEO Léo Apotheker, but failed to revise plans to chop up the company, including a plan to spin off the core prosperous PC business, which is currently the top global supplier of personal computers.  Share prices have stabilized somewhat with the addition of new CEO Meg Whitman, but with a shareholder class action suit looming it seems very uncertain whether the company has permanently halted its downward plunge in share prices.

Oracle, Corp. (ORCL), one of the companies that the "new" HP is hoping to compete with in the enterprise products realm, has observed the mess with great amusement.  After all, HP's downward slide began when the company fired successful CEO Mark Hurd for doctoring expense reports to obfuscate his sexual foibles.  Mr. Hurd was a close friend to Oracle CEO Larry Ellison, who called the HP board "idiots" and promptly hired Mark Hurd as a Co-President.  Ever since he's been taking the occasional pot-shot at the struggling giant.

I. War of Words Between Oracle and HP/Autonomy Escalates

But in the last week the atmosphere between the two companies had turn from hostile to downright nasty.  It all began with Oracle's earnings call in which Mr. Ellison commented, "Autonomy was shopped to us... We looked at the price and thought it was absurdly high." 

Larry Ellison says "Come at me, bro!"
Oracle CEO, Larry Ellison [Base Image Source: Justin Sullivan/Getty Images]

Oracle claims that it rejected a $6B USD offer to purchase London-based Autonomy Corporation Plc. (LON:AU) as overpriced and then was amused to see HP happily pay $10B USD for the company.

In a Wall Street Journal interview, Autonomy CEO Mike Lynch rejected this claim, commenting:

[The claim] inaccurate... If some bank happened to come with us on a list, that is nothing to do with us.

Oracle responded by airing a press release creatively titled "Oracle Issues a Statement", which reads:

After HP agreed to acquire Autonomy for over $11.7 billion dollars, Oracle commented that Autonomy had been ‘shopped’ to Oracle as well, but Oracle wasn’t interested because the price was way too high.  Mike Lynch, Autonomy CEO, then publically denied that his company had been shopped to Oracle.  Specifically, Mr. Lynch said, "If some bank happened to come with us on a list, that is nothing to do with us." Mr. Lynch then accused of Oracle of being 'inaccurate'.   Either Mr. Lynch has a very poor memory or he’s lying.  'Some bank' did not just happen to come to Oracle with Autonomy 'on a list.'  The truth is that Mr. Lynch came to Oracle, along with his investment banker, Frank Quattrone, and met with Oracle’s head of M&A, Douglas Kehring and Oracle President Mark Hurd at 11 am on April 1, 2011.  After listening to Mr. Lynch's PowerPoint slide sales pitch to sell Autonomy to Oracle, Mr. Kehring and Mr. Hurd told Mr. Lynch that with a current market value of $6 billion, Autonomy was already extremely over-priced.  The Lynch shopping visit to Oracle is easy to verify.  We still have his PowerPoint slides.

In a Wednesday interview Mr. Lynch again denied this claim, commenting, "We talked about databases."

Mike Lynch, Autonomy CEO: "Why U Mad?"
Autonomy CEO, Mike Lynch [Base Image Source: Bloomberg News]

Oracle issued a new press
release entitled "Another Whopper from Autonomy CEO Mike Lynch" (ouch) writing:

"Autonomy CEO Mike Lynch continues to insist that Autonomy was never 'shopped' to Oracle.  But now at least he remembers and admits to meeting with Oracle President Mark Hurd and Doug Kehring, Oracle’s head of M&A, this past April.  But CEO Lynch insists that it was a purely technical meeting, limited to a 'lively discussion of database technologies.'  Interesting, but not true.  The slides Lynch showed Oracle’s Mark Hurd and Doug Kehring were all about Autonomy’s financial results, Autonomy’s stock price history, Autonomy’s Price/Earnings history and Autonomy's stock market valuation.  Ably assisting Mike Lynch’s attempt to sell Autonomy to Oracle was Silicon Valley’s most famous shopper/seller of companies, the legendary investment banker Frank Quattrone.  After the sales pitch was over, Oracle refused to make an offer because Autonomy’s current market value of $6 billion was way too high.

We have put Mike Lynch’s PowerPoint slide sales-pitch up on the Oracle website – – with the hope Mike Lynch will recognize his slides, his memory will be restored, and he will recall what he and Frank Quattrone discussed during their visit to Oracle last April. Yesterday, the Autonomy CEO did not remember having any meeting with Oracle.  Today, he remembers the April meeting and inaccurately describes how it came about and what was discussed (see next paragraph). Tomorrow, he will need to explain his slides.

Mike Lynch describes his meeting with Oracle: "On one of my trips to SF (April 2011), Frank Quattrone whom I have known for a long time offered to introduce me to Mark  hurd. Oracle was a customer and I have never met him, so it was a good opportunity. Frank does this from time to time on my visits, he has introduced me to many people. . NOTE: Frank was not engaged by Autonomy and there was no process running. The company was not for sale. I recall meeting with mark and someone else I believe called Doug. At the start of the meeting they joked that frank was there to sell them something. Frank and I made it clear that was not the case. We then met and had a lively discussion about database technologies. The meeting lasted approximately 30 mins. Frank is happy to confirm this."

Oracle then posted slides [1][2], verifying publicly that the April meeting in question was between Qatalyst Partners, the financial firm retained by Autonomy in exploring sales options.

Here's some Scribd copies for review (if you're interested):

Autonomy Presentation 1 505952

Autonomy Presentation 1 505952

Frank Quattrone, the Qatalyst Partners banker involved in the meeting, issued a statement to the Financial Times commenting, "The slides Oracle posted publicly were sent by me to Mark Hurd in January, were prepared by Qatalyst and were for the purpose of our independently pitching Autonomy as an idea to Oracle. These slides were not used in our April meeting with Mark and Doug."

In a response printed by the UK's Guardian (the second most read online English newspaper in the world), an Autonomy spokesperson adds:

Last week in response to a question about unstructured information Oracle made some less-than-enlightened comments on the subject, which Autonomy has been pointing out in the press.

Now, as an attempt at diversion from their poor positioning, Oracle has raised the issue of whether Autonomy was "shopped by its management team" to them.

In April 2011, there was a meeting for approximately thirty or forty minutes between Autonomy and Mark Hurd, which was set up by Frank Quattrone as an introduction to Mark Hurd. Oracle is an Autonomy customer. It was made clear that Autonomy was not for sale and no sale process was under way. Mr. Quattrone's company was not engaged by Autonomy at that time. There has been no other contact with Oracle since then.

It may well be that investment banks were independently recommending Autonomy as an acquisition target to industry players – that is standard practice for — but this would not have been at our behest. Qatalyst have informed us that the slides Oracle has recently posted on its website were prepared and sent independently by Qatalyst to Oracle on 26 January (the content is clearly from January). This is the first time we have seen them. Autonomy was not involved in this nor was Qatalyst engaged by Autonomy until mid-year. Autonomy did not present these slides in the meeting.

Oracle seems a little confused about the sequence of events and origins of the data it has received, something that would suggests it needs better management of and insight into the unstructured data on its internal systems. We would be delighted to help.

CEO Mike Lynch commented that he was "flattered and amused by all of the attention."

II. Why is Oracle so Intent on Discrediting HP's Leadership?

The story has swept the blogosphere like a bad soap opera.  And by the sound of it there may yet be more he-said-she-said before this story dies down.

So why is Oracle so eager to discredit HP and Autonomy.  Well with HPshare prices at recent lows, some believe that Mr. Ellison, whose company has $30B USD in free cash, is eyeing an acquisition of HP.  However, HP's market cap sits at around $46B USD, so it's still teetering just out of the reach of Mr. Ellison's maw.

But if Mr. Ellison can discredit HP's Board as behaving unsoundly from a business perspective, he can both try to depress the company's share price and appear sympathetic to disgruntled HP shareholders, who would have to eventually approve a purchase.

What does all this mean for consumers?  Not much that hasn't already been said, but there is the possibility that if Mr. Ellison is indeed playing at buying HP and he succeeds, that the spin-off of the Personal System Group could be averted.  This would mean that HP -- as the public knows it -- could survive in one possible scenario, at least.

Sources: Oracle Issues Statement, Mike Lynch and Oracle: Frank replies (updated), Ellison Stirs the Pot Over H-P Deal

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Laughing all the way.
By drycrust3 on 9/30/2011 4:22:48 PM , Rating: 3
Oracle, Corp. (ORCL), one of the companies that the "new" HP is hoping to compete with in the enterprise products realm,

Oracle isn't stupid, they would have all their important clients tied into long term contracts, so someone would have to pay out to Oracle to get any of those clients. The same would apply to other software companies that operate in this market, like IBM, which means growth is going to be slow in this market (and especially with the problems with the Euro and the US dollar). That just leaves the small fry businesses and new markets, like China, for HP to deal with.
Considering China for a moment, the fact it was so easy for Lynch's words to be brought into doubt shows his word and honour are suspect, which could be a serious disadvantage in a market where personal honour, keeping one's word, and the idea of loosing face are considered important.
I don't get why Lynch gets so excited about the value of his company. The value of Autonomy is what someone is prepared to pay, and what they are prepared to pay is based upon the profit it makes. Is the profit they make in line with what one expects of a $10B company? With a net income in the $200M to $300M region, to me (and I guess this shows my lack of business acumen) that isn't what I would expect from a $6B company, let alone a $10B company. If the HP board of directors approved paying $10B for a company with the profit of a less than $6B, then they need to explain that to their shareholders.
Looking at Autonony's presentation: Graphs showing the quarterly income as a percentage and the whole year doesn't add up to 100? Graphs without scales? Graphs showing Oracle (and, interestingly, HP) as having poor strategic vision? A graph showing Google as performing poorly in the search engine market? Graphs with undefined terms? Using "$MM" for millions of dollars is confusing and looks like obsolete terminology.
Ellison and Hurd are the type of people who would have known a whole lot about Autonomy before Lynch and co walked into their office, so when they did their presentation they weren't so much selling the company as the ability of Autonomy's senior management to be trusted. Why would you put percentages in that obviously don't add up to 100 right under the nose of one of the smartest business people in America?
All in all, I think Lynch and co have made laughing stocks of themselves.

"I modded down, down, down, and the flames went higher." -- Sven Olsen

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