“Mr Bezant’s evidence at trial set out a systematic and comprehensive assessment of the loss based on what the Claimants called the “True Position”, which corrected Autonomy’s published financial information for the effect of the totality of the alleged fraud. From that starting point, Mr Bezant valued Autonomy using both DCF and multiples analyses; estimated its counterfactual share price; and assessed Revised Price by reference to a variety of metrics, including a range of premia over that estimated share price. His overall conclusion was that HP's loss was in the order of$5bn . …. Mr Bezant has now amended the various... schedules, to reverse the adjustments the Claimants had made in respect of the Excluded Transactions, and thereby establish the RTP (i.e. the Revised True Position). He has then re-performed the same valuation methodology he used at trial and concluded that his valuation of Autonomy is about$1bn higher – and, as a result, his assessment of the loss about$1bn . lower (i.e., c.$4bn ).”
“…Mr Bezant’s DCF valuation did not fully capture Autonomy’s underlying economic activity, resulting in a significant understatement of Autonomy’s cash flow generation, which is the focus of a discounted cash flow valuation model. The accounting adjustments, whilst reducing Autonomy’s revenues and profits, had no effect on cash meaning that, in the Restated Position, Autonomy’s cash conversion was significantly higher, as demonstrated by the free cash flow(“FCF”) margin analysis presented in my [second] report… In effect, Mr Bezant incorporated the negative revenue impacts of the accounting adjustments but ignored the offsetting positive cashflow effects - these are reflected in the working capital, specifically, deferred revenue, movements which have the effect of shifting revenue into the future whilst maintaining existing cash flows.”
“The value of any asset depends on three factors: (1) the amount of cash it currently generates; (2) the potential future growth (or decline) in these cash flows; and (3) the risks attaching to future cash flows.”
“It makes no logical sense to say that… profits are more important than cash flows. To the contrary, the specific purpose of the calculations is to unwind the accounting treatments (resulting from accounting conventions), in order to arrive at the underlying economic activity represented by the cash flows”, given that the “DCF method inherently relies on historical cashflows to project such future cash flows”
“The principal reasons why there is no material change in the DCF valuation are that cash flow and growth are the critical drivers of value. In that regard: a. The underlying economic activity of Autonomy (i.e., its cash generating capacity) was not altered by the accounting adjustments and was actually enhanced from the perspective of a buyer considering the future prospects of Autonomy in 2011 (i.e., on a continuing operations basis) As to that “continuing operations basis” see footnote 55 under paragraph [177] below. . b. Autonomy’s organic growth rate was higher in the Restated Position than it was in the Reported Position and that growth was increasing in H1 2011.”
“Assuming an appropriate set of Accounting Adjustments, the first impact of the adjustments to the historical data is to reduce revenue. However, the Allegations all involve either cash neutral or loss-making transactions and therefore the counterfactual free cash flows for the Relevant Period should either be neutral or improved. This neutral or improved cash position should be reflected through restated costs, capital expenditure, accounts receivables, accounts payable and deferred revenue adjustments that offset, or more than offset, the reductions in revenue.”
“The company’s historic cash-flows and cash reserves are not in dispute. This is relevant because, first, HP challenges Autonomy’s recognition of revenues as an accounting matter but not the receipt of cash that Autonomy reported. Secondly, (HP and the market generally) valued Autonomy based on its cash-flows, rather than its revenues, software revenues, software revenue growth or organic software revenue growth (as HP now claims).”
“…discounted cash flow is ultimately about cash, because cash flows drive value, and it is the free cash flows “Free cash flow” is the cash that remains after a company has paid what is required to support its operations and to fund capital expenditure. It is calculated by subtracting capital expenditure (or “capex”) from “net cash from operating activities”. that you are trying to calculate with the DCF which you then discount to the present value to get total value of the business. Our position is that the starting point is that cash is the best touchstone for the actual economic activity of the business. Cash is king. Cash reflects the actual sales made by the business and paid for by customers, so it is an important check of the health and success of the business. Now we don't say that cash is the only metric that your Lordship needs to look at, or that simply because the cash is unchanged here [that] is the end of the story. But we say that looking through the accounting measures to the real business activity will give your Lordship some indication of what is going on with this business, and that feeds into the valuation exercise in two ways. One is more technical and one is a bigger picture point. On the more technical side of things, there is obviously a relationship between the accounting measures and the cash that you get at the end of your DCF model, the free cash flows. The top line is the accounting measures but the bottom line, and what you care about, is the cash flow, and the connection, the mechanical connection between them is, effectively, your cash conversion. We know that the working capital judgments are a bit more complex than that, but they are effectively the…relationship between the company's accounting measures and actually the cash it generates. So that's the technical point. But on top of that, there is a broader point of principle, which is that when you are looking at the historical experience of a business to ascertain the real economic activity and momentum, you need to look at the cash activity, because that tells you what is going on under the hood, and that will help you ascertain the momentum of the business, which will help you ascertain what is going on with growth. … And it is important that the tail doesn't wag the dog in this relationship between accounting measures and cash. It is the business activity in the historical period which comes first and that is ultimately what drives the valuation. The accounting is a convention that tries to capture that business activity and, like all conventions, there are principles and rules applied, including concepts like prudence and conservatism. In your DCF model, your top line is that accounting measure but your bottom line, and what you care about, is the cash, and what you are trying to do is unwind the accounting measures to arrive at the real economic activity of the business, so it is not that the accounting drives the cash, it is that you need to convert the accounting to cash to understand the activity.”
“The misconduct in which the Court has found Dr Lynch and Mr Hussain engaged was one essentially directed to quarterly revenue targets. Such matters were inevitably short term in focus and anchored to short term fluctuations in the share price. There is no reason to think that they would have had any bearing on the long-term prospects or HP’s assessment of such matters. Autonomy remained on a standalone basis a very valuable asset with a promising future.”
“reflect the recognition of$9.6 million of revenue (being the licence fee of$19.5 million less certain credits and payments available to Bank of America of$9.4 million and an early payment discount of$0.5 million ) over that term as hosting revenue (together with equal and opposite reductions in deferred revenue to offset that deferred in Schedule 4 in respect of the three VAR transactions (Schedule 3, Transactions 16, 23 and 24)).”
“A monthly recurring charge for hosting shall apply as follows: (i) for 1-20,000 seats rolled out in production -$20,000.00 ; (ii) for 21,000-40,000 seats rolled out in production - and (sic) additional$20,000.00 ; (iii) for 41,000-60,000 seats rolled out in production - an additional$20,000.00 ; and (iv) for 61,000 to 80,000 seats rolled out in production - an additional$20,000.00 ”
“you will simply see the true revenues and the true margins and so on, so the costs will be in that but they will not be visible to HP. HP will not see them. In the FSMA Counterfactual, HP will not know that there were MAFs paid and there were Reciprocals paid. So when it comes to value the business it has absolutely no reason to do anything other than take the revenues and the margin figures at face value and value on that basis.”
“Although IFRS disclosure provides investors and management with an overall view of the company's financial performance, Autonomy believes that it is important for investors to also understand the performance of the company's fundamental business without giving effect to certain specific, non-recurring and non-cash charges. Consequently, the non-IFRS (adj.) results exclude share of profit/loss of associates, post-acquisition restructuring and legal costs and non-cash charges for the amortisation of purchased intangibles, share-based compensation, interest on convertible loan notes, non-cash translational foreign exchange gains and losses and associated tax effects. Management uses the adjusted results to assess the financial performance of the company's operational business activities.”
“…the only point is, is it right to project a business in the future that will have this historical baggage when in fact it will not be part of Autonomy’s future, and we have taken it out in our valuation approach and we say that is what someone, an investor or someone looking to acquire a new business, would do.”
“Through this acquisition, HP would position itself at the forefront of the emerging marketplace of machine learning and artificial intelligence, combining IDOL with HP’s Vertica to create the database of the future.”
“In summary, Mr Bezant’s approach departs substantially from the organic growth that would have been reported in H1 2011 and from HP’s evident approach. Given the high growth observed in H1 2011 and the clear increasing trend, there is no basis for the rapid collapse in IDOL Product growth that is adopted by Mr Bezant….and the consequent impact on valuation.”
“…where a deal has been booked to the counterfactual world and there has been a pre-payment, the accounting will generate both revenue and deferred revenue, and we say that the claimants have fallen into error because their analysis of the cloud business only looks at recognised revenues and not the deferred revenue. Deferred revenue obviously has value because it is real revenue. It is guaranteed to be recognised. It is simply that you can’t recognise it quite yet and the claimants place no value on that. Mr Bezant has not put forward any valuation which values any growing deferred revenue generated by this business.”
“263. In the context of the Deal Model, the rapid historical growth in deferred revenue in the Restated Position would have influenced HP’s deferred revenue forecast. 264. I therefore adopt an approach to forecasting deferred revenue based on the approach for the multi-year hosting deals. I observe the annual growth rate at Q2 2011 is 16.2% but this includes organic growth of 5% plus the deferred revenue increase from the Iron Mountain transaction. I therefore apply the 5% organic rate to the restated observed level at the end of 2010 of$277.4 million before adding the Iron Mountain element of$31.7 million to give a total for 2011 of$321.8 million . 265. As growth in billings to customers slows, deferred revenue growth will decline more than deferred revenue release. Accordingly, while deferred revenue growth is assumed to be 16.2% in 2011, I assume it will decline to 7% by 2021. For the intermediate years I use the mid-point of interpolation factors for IDOL Product and Cloud (i.e., 0.4, which is the midpoint between 0.5 and 0.3). 266. As a result of these growth projections, deferred revenue grows to$716.1 million in 2021… 267. Adopting my approach to growth in deferred revenue increases the standalone value of Autonomy by$405 million to$9,621 million , and the synergy value remains at$7,203 million .”
“As more hosting contracts came up for renewal, renewals would have driven growth (rather than being initially entirely dependent on signing new customers). This layering of revenue is inclined to produce strong growth.”
“In the counterfactual world, there would have been no acceleration of revenues on these deals such that the reported revenue would simply have reflected the amount of business actually done in the relevant quarter.”
“My learned friends keep on talking about inorganic or organic growth for this part of the business, but it is slightly meaningless, because HP’s approach was to look at the aggregated business and how it would grow and…HP…didn’t base their analysis on the organic growth rates of the standalone Autonomy and the standalone Iron Mountain.”
“If it hadn’t been holding share in the recent past and in a market that was growing strongly, then there is no reason to believe it would continue to hold market share…It is a function of how well it has done in the past, in absolute terms and relative terms, and how well it might do in the future in absolute terms and relative terms, that combined give you these market share outturns.”
“Mr Giles contended that 0.3 better matched HP’s flight path. However, whether that is a virtue or a vice depends on the extent to which growth in the counterfactual resembles growth in the represented position. Mr Bezant pointed out that there was “no reason” why the growth rates in the true position should mirror those in the represented position.”
“This is cash being brought in against future periods, so it is not revenue that can be compared to revenue, it is not revenue that can be represented as revenue; it is cash that will be recognised as revenue in due course.”
“…fallen into error because their analysis of the cloud business only looks at recognised revenues and not the deferred revenue. Deferred revenue obviously has value because it is real revenue. It is guaranteed to be recognised. It is simply that you cannot recognise it quite yet and the claimants place no value on that. Mr Bezant has not put forward any valuation which values any growing deferred revenue generated by this business. … [Indeed] The DCF model places higher value on prepayments, because they come into your model immediately through changes of deferred revenue, and that goes through the working capital adjustments straight into your free cash flow. So if you have increases in deferred revenue, that gives you an immediate value kick in the impact on your free cash flows.” … [Indeed] (8) Of course, the Claimants are right that upon cessation of multi-year hybrid hosting, the deferred revenue balances attributable and expected to grow by reference to that line of business would have unwound to zero. That seems to me to be equally obvious: but it is nothing to the point unless cessation is to be assumed. The question then is whether, in a counterfactual world in which the hybrid hosting model offered no advantages in terms of accelerated revenue recognition, HP would have focused and discontinued that line of business or envisaged or assumed its continuation. That requires a determination of a somewhat speculative issue of fact which was not addressed at the Main Hearing, was not put to any witness, and which I did not determine as part of my Main Judgment. It is a question which, if any determination would be fair in such circumstances, must depend on the evidence available at the Main Trial, which provides (in my assessment) conflicting indications. (9) On the one hand, the fact that HP did in fact continue the hybrid model until May 2012 (as I found to be the case in my Main Judgment) militates in favour of a conclusion that HP did at the time of the Acquisition envisage its continuation. So too does the fact that, as part of the exercise to identify areas where the requirements of US GAAP differed to those of IFRS, HP did undertake a review to determine whether under US GAAP VSOE rules (explained in paragraph [2808] of my Main Judgment), and footnote 320 of my Main Judgment. As explained by the Claimants, in essence, VSOE refers to the evidence required in order to attribute a reliable fair value to individual components of a transaction. the revenue from the sale of licences could continue to be treated as earned revenue or would have to be treated as deferred revenue to be released over the lifetime of the hosting contract. That would suggest to me that at the time of the Acquisition, HP assumed its continuation, or at least had no plan to discontinue. (10) On the other hand, the model was unusual: SaaS would have been the normally appropriate and common structure. Although popular with the sales force (who received commission on the first year sale), and offering some business benefits (such as enhancing ‘stickiness’ and increasing the customer’s propensity to expand its storage requirement as identified in my Main Judgment), the discounted revenue streams after the initial licence fee meant that the total contract value of a hybrid contract was in most, if not all, cases reduced considerably. Further, it appears from an internal HP memorandum that HP appreciated that (a) IRM had not adopted the hybrid model until after its acquisition by Autonomy, and its hosting business (which the same memorandum records That memorandum also records that (a) generally the Total Contract Value of hybrid hosting agreements was substantially lowered and (b) only after “the [IRM] acquisition by Autonomy there was a significant shift to the lic + hosted model in the 4 mths before Autonomy was acquired by HP. This provided a short term boost to revenue in Autonomy’s Q3 2011 results.”
“the opportunity cost of capital (that is, the expected rate of return on equivalent investment alternatives in the capital market), measured as the average rate of return required by equity and debt investors in that market, weighted by the typical proportion of equity to debt.”
“the return that investors in a company (in this case Autonomy) expect on their investments having regard to the capital structure (e.g. equity and debt) and risk. As typically there are both equity and debt investors in a company, the calculation generally results in an average of the returns that equity and debt respectively investors would expect, weighted by the amount of equity versus debt that one would normally expect in such a business. For example, using a 10% WACC as a discount rate means that$100 of free cash flow projected for a business for next year is worth only$90.91 this year, and$100 the following year has a present value of only$82.64 .”
“concerns [in 2011] about the slowing macroeconomic outlook of several major economies and the Euro area sovereign debt crisis contributed to a significant fall in global equity prices and an increase in the implied market risk premium (MRP). Taking these factors into account…[and]…adopting higher estimates of MRP in use at the Valuation Date would increase my estimate of Autonomy’s WACC to around 10%.”
“The least square method produces a line whereby, overall, the distances between the line (in this case green line) and the observations (in this case red triangles) are minimised. The overall measure of the “fit” of the line is the sum of the vertical distances between each red observation and the corresponding position on the green line squared. These distances are effectively “errors” as they show the extent of the deviation from the line. Accordingly, the applicable measure of reliability is known as the “Sum of the Squared Errors” or “SSE”.” , even with the graphs and tables which Mr Giles provided. I found Mr Bezant’s explanation of Mr Giles’s approach more helpful, at least to some degree. This was as follows: “This approach assumes, in effect, that there is a statistical relationship between companies’ short-term forecast growth prospects and valuation multiples. Mr Giles estimates a line of “best fit” for this relationship based on the observed forecast growth rates and trading multiples for his selection of comparable companies. This is equivalent to performing a linear regression analysis. He then estimates the “Best Fit multiple” implied by the line of best fit and Mr Giles’s and my respective short-term forecasts of Autonomy's growth in the RTP.”
“An acquisition of Tesla [Autonomy] enables Hawk [HP] to leapfrog IBM and Oracle which have invested billions of dollars on structured data analytics.”
“Unlike a DCF analysis, the share price of a company is not driven by a specific valuation model and set of transparent assumptions. The share price of Autonomy, like all publicly traded equities, is driven by a range of factors both specific to Autonomy and relevant to the general market, including: a. Current expectations of Autonomy’s financial performance; b. Information about historical financial performance; c. Changes in interest rates, foreign exchange rates, etc.; d. Market commentary about Autonomy, the software industry, or the economy, amongst many other factors.”
“reality is that accurately calculating Autonomy’s share price in the counterfactual world on a particular date is an impossible task. The share price is likely to have been volatile, as it was in the actual world, driven by a multitude of factors, including macroeconomic and other long term and short term considerations, all of which might lead to a divergence between a share price and a company’s true long term value. As Mr Giles explained, a proper analysis of the share price would require an event study, See paragraphs [105] and [106] above. something which had not been prepared for this court.”
“On balance, given the volatility of Autonomy’s share price historically, the uncertainty about the factors affecting price, and both the positive and negative implications on value from the Accounting Adjustments, I see no reason that the why [sic] price in the Restated Position would have been materially different from Autonomy’s actual share price.”
“…in the context of a company quoted on the Stock Exchange which has a variety of owners in effect, for whom the market value is the prevailing share price, their considerations are informed by the prevailing share price irrespective of anyone’s views as to the underlying value of that business and therefore the price at which they are likely to sell or may be induced to sell is informed by the traded share price of that business.”
“use their forensic skills to do the best they can with limited material to achieve practical justice.”
“…we assumed a “stand alone”
“…HP would not have been willing to share a higher proportion of its assessment of the value of synergies in the RTP than it actually shared on the basis of the Represented Position…”
“your view of the potential synergies from using the technology in other applications is informed by the evidence and history that you have of how the technology has been used to date and how successfully it has been used to date and how attractive the market finds it and how much people are willing to pay and whether there has been a steady growth in demand and a steady growth in revenues”
“evolve the Enterprise Business from low-margin products and services to become a full services and solutions partner for businesses, providing the essential/strategic parts of the technology “stack”. (The “stack” comprises the hardware, software, and network layers that stand between the basic infrastructure of data creation, storage and distribution and the end user of information.) One element of this change to the Enterprise Business, I suggested, would be to expand HP’s software offering, making it a more prominent part of the HP technology stack and transforming it into the linkage that would add value to all elements of the HP business. … …the strategy that HP was pursuing at the time was focused on moving away from low-margin hardware sales and towards higher-margin, higher-growth software and added-service sales that were higher in the technology “stack”.” (4) Mr Apotheker added that a further perceived benefit, which it appears HP also considered would enhance its own business and thus represented synergy value, was that (again in the words of Mr Apotheker): “Autonomy, alongside Vertica and HP’s Nonstop SQL database technology, would provide HP with a ‘disruptive data stack’ – i.e. that the technologies could, together, displace established operators in this market.” (5) That said, and in addition to the smaller reductions acknowledged by Mr Giles, I consider that Mr Giles underestimates the likely effect of (a) the fact that Autonomy had a growing dependence on third party hardware sales to maintain revenues and demonstrate its market success, and (b) the virtual “elimination” of the IDOL OEM line of business. I accept (as I accepted in my Main Judgment) that these were matters of importance to Mr Apotheker and his board at the time of the Acquisition, as is (for example) evident from an initial analysis of Autonomy undertaken by HP which placed emphasis on the fact that IDOL appeared to be “the de facto standard among OEMs” (and see paragraph [155(1)] of my Main Judgment in this regard). They were matters that could, perhaps would, have impacted its view in valuing the propensity of Autonomy’s technology to provide HP with established market share and standing in the software ‘space’ and to provide ‘disruptive’ value. (6) In that connection, however, and again in substantial agreement with the Defendants, I do not consider Mr Apotheker’s “evidence” at the end of his witness statement that if HP had pursued the acquisition with knowledge of Autonomy’s actual financial performance unaffected by the fraud, “the synergies that HP might have hoped to realise…would have been far less” as being much more than generalised speculation honed to round off the Claimants’ case. Mr Apotheker explained in cross-examination at the Main Trial what his thought process was; and I have set out and fully accepted in my Main Judgment his evidence that “there is a sequence here that is very important. It had to be a sound asset…the acquisition was based on the intrinsic value, stand-alone value of Autonomy plus the synergies…the actual value of the company was the foundation.”
“Now, we accept that in some cases it will be within the proper remit of an expert to consider the price of something. So, for example, if you had a competition case and you were looking at whether a producer had acted in a monopolistic way or in a cartel, you might well say, well, the expert can properly look at what the price would have been in the market if this behaviour hadn't happened. But we say this case is quite different from that. We are not looking at a multitude of transactions where there is statistical analysis as to how market participants would have behaved. We are looking at a single transaction that was highly complex where your Lordship is steeped in actually how it played out. So we say your Lordship ought not to listen to Mr Bezant and his views on that and, indeed, he ought not to have offered his opinion on that.”
“[t]he question of what is the premium over the share price, that is a matter for your Lordship ultimately. Mr Bezant has put forward ways in which one might calculate it, hopefully in an attempt to assist your Lordship, but it is for your Lordship to decide…”
“It is important to note that in the counterfactual scenario we are not assuming that earnings and growth expectations were missed or missed by a greater margin than in the Reported Position. The assumption is that the market was provided with accurate accounting information in the Restated Position.”
“…, normally the way this is done is you do a discounted cash flow you do an analysis of synergies... Then you look at what other like transactions have gone for and you get what is called a football field - American football, not British football - and you look and say, “Okay, where have other transactions landed? What price are we willing to pay? –How much– what’s the discounted cash flow of the independent entity? What might the synergies be?”
“Given the recent market movements, we need to focus on: 1. The optics of the deal: premium versus current price, 2. Price rationale for T [Tesla, i.e. Autonomy] given our current price Just to be clear: I want to go ahead with T and want to make sure that we have all the arguments to defend the transaction. In fact, I believe that it is times like these that one has to go on the offensive. Your support in building the argumentation is therefore important.” (3) The very considerable synergy values envisaged, encouraged and provided the financial back-up for such enthusiasm. I have found that in the Represented Position “HP were not wedded to obtaining any particular proportion of the expected synergies on an acquisition” (see paragraph [222(4)] of my Main Judgment). Again I would not expect that to have changed in the RTP. As submitted by Dr Lynch, there was latitude for HP to pay a greater proportion of its own assessment of Autonomy’s combined standalone value and synergy value. (4) Mr Apotheker and HP’s board as then constituted would (as in the Represented Position) have regarded Dr Lynch’s support in securing the Acquisition and thereafter in assisting in the development of the combined businesses to be a key factor. Autonomy and IDOL were Dr Lynch’s brain-child. Autonomy was a start-up which had become a FTSE 100 company. Under his leadership, and on the basis of the product he had conceived, Autonomy had (according to Mr Pearson) grown its revenues by over 1,200%, its net profit by some 3,500% and its EPS by some 1,700%. Even allowing for some diminution in these figures once impugned transactions are taken into account, this success was exceptional by any standard. (See also paragraphs [36], [37] and [99] of my Main Judgment.) (5) Further, HP had a high opinion of Dr Lynch’s abilities as a technologist and manager, as Mr Apotheker confirmed in cross-examination; and HP placed value on securing his involvement in (and at that time, proposed leadership of) the newly-integrated software business. I see no reason for assuming any different outlook in the RTP. Not only would this all, in the RTP as in the Represented Position, have the qualities and success of IDOL from HP’s point of view; it would also have informed the outlook and expectations of Dr Lynch, in particular, in gauging what it was reasonable to expect HP to pay to achieve his recommendation and continuing services. (6) If anything, the interloper risk would have been all the greater in the RTP: concerns which weighed with the more sceptical analysts (for example, Mr Morland) in the Represented Position, such as what some (such as he) considered to be Autonomy’s poor cash conversion, might not have arisen in the RTP, and any decrease in the share price would be more likely than not to have increased potential competition. (7) The combination of HP’s urgent need and its excitement about Autonomy as the means to address it, on the one hand, but, on the other hand, its concern to avoid a bidding war (see paragraph [222(5)] of my Main Judgment), put HP at a disadvantage, of which Dr Lynch would have been well aware (and keen to exploit). (8) Dr Lynch and his family held 19,800,354 ordinary shares and 479,774 share options (amounting to 7.26% of the total number of shares). Mr Hussain held 9,978 ordinary shares and 389,296 share options (amounting to 0.14% of the total number of shares). Their combined holdings were not such as to enable them to prevent compulsory acquisition; but in light of HP’s decision only to proceed by way of an agreed bid, these holdings gave Dr Lynch considerable leverage, in addition to the leverage inherent in his position and incidental to HP’s need to secure his recommendation. As recorded in paragraphs [193] to [194] of my Main Judgment: “On24 June 2011 , BarCap gave HP advice on how to avoid a contested takeover, in a presentation headed “Project Plato – Deal Protection Considerations”
“Given Michael Lynch’s ~ 8.5% ownership of Atlantis; board control and critical role as the founder / visionary / CEO - absolutely important to get his buy-in. HP enters into a hard irrevocable with him whereby he pledges his shares to HP (through a call option program). He also needs to have a strong view about other buyers i.e. “not selling to anyone else”.”
“What we can say is that Tesla [Autonomy] is an irreplaceable piece of the repositioning puzzle, and it needs to be accompanied by Hermes to mollify the market.”
“Unfortunately, Tesla is not available at a price that value investors would applaud; other targets do not exist which achieve the same magnitude of strategic repositioning; activist investors, or even the long only investor group, will not wait for tangible evidence that the services business will turn around. The company has the opportunity to change significantly, through both Tesla and Hermes; and we would go as far to say that the status quo is not a practical option, even if the market reaction is anticipated to be less positive upon announcement.”
“If you are saying that there are people out there today ready to offer cash of over 26 pounds we need to rethink the strategy. The London market does not value growth or understand future tech prospects (e.g. we get penalised for cloud revenues!) On that basis given there are no poison pills in the UK it would be like someone turning up and offering a Native American chief 3 rifles and some fire water in return for Dakota, in short the shareholders would not allow the deal to be stopped”; and later in the thread: “…if it gets to 26 pounds neither myself, or any other living creature would be wise to try and stand in the way and so would not!”
“Autonomy’s management was engaged in a systematic effort to portray Autonomy’s business as stronger, better managed, more vibrant and more successful than was truly the case…”; such that: “If, as seems most likely, the explanation I heard was not satisfactory, I have no doubt that I would have recommended to HP’s Board that it should abandon the deal…”
“If the Court decides on a Transaction Counterfactual, then losses for the misrepresentation claim will be assessed in the same way as for the FSMA claim.”
“… far from proving Assumptions one and two on the balance of probabilities, the least likely possibility in the counterfactual scenario is the one for which the Claimants contend, namely, that the price structure of the customers’ hosting deals would have been static. Given the commercial dynamics, it is more likely that the revenue figures would have been materially no different if the customers had not entered into the Table 12D transactions.”
“Conceptually, I prefer the recurring revenue structure provided by the SaaS model. SaaS is a subscription model which is safer and more predictable over the longer term. The licence model is a shorter term approach which, although it generates significant additional revenue in the present, leads to reductions in longer term revenue and, thus, to a reduction in the total revenue which would be earned on those customers’ accounts over the lifetime of the relationship for providing what was, in reality, the same set of services.”
“a plaintiff, who normally conducts his business through a particular currency, and who, when other currencies are immediately involved, uses his own currency to obtain those currencies, can reasonably say that the loss he sustains is to be measured not by the immediate currencies in which the loss first emerges but by the amount of his own currency, which in the normal course of operation, he uses to obtain those currencies. This is the currency in which his loss is felt, and is the currency which it is reasonably foreseeable he will have to spend” (page 697F-H). (3) However, there is no “hard and fast rule that in all cases where a plaintiff suffers a loss or damage in a foreign currency the right currency to take for the purpose of his claim is “the plaintiff’s currency”” (page 698F). (4) On the contrary: “cases may arise in which a plaintiff will not be able to show that in the normal course of events he would use, and be expected to use, the currency, or one of several currencies, in which he normally conducts his operations (the burden being on him to show this)” (page 698G-H) (5) The claimant bears the burden of showing that damages fall to be assessed in some currency other than sterling: “The plaintiff has to prove his loss: if he wishes to present his claim in his own currency, the burden is on him to show to the satisfaction of the tribunal that his operations are conducted in that currency and that in fact it was his currency that was used, in a normal manner, to meet the expenditure for which he claims or that his loss can only be appropriately measured in that currency.” (Page 698A) (6) Where companies maintain accounts and operate in several currencies, “again it is for the plaintiff to satisfy the court…that the use of the particular currency was in the course of normal operations of that company and was reasonably foreseeable.” (page 698B). (7) The Claimants suggest that since this is a fraud case, considerations of foreseeability do not apply. However, the FSMA Claim does not lie in fraud, for the reasons set out at §534 of the Main Judgment. Main Judgment at §534, summarising Dr Lynch’s submissions: “In a claim in fraud or deceit, “the policy of the law is to transfer the whole foreseeable risk of a transaction induced by fraud to the fraudulent defendant” (Slough Estates, above). But in a claim under s. 90A / Sch 10A, there is no “fraudulent defendant” since the fraudster (i.e. the PDMR [person discharging management responsibility]) and the defendant (i.e. the issuer) are different persons. Unlike a successful fraudster, an issuer does not in general benefit from the PDMR’s wrong in putting out misleading annual or quarterly reports because, as already discussed, these are not “selling” documents. Transferring risks to the issuer penalises the general body of its shareholders, not the individual responsible for the misleading statement. Far from seeking to transfer risk to the issuer, the policy underlying s. 90A and Sch 10A was to avoid an inappropriate transfer of risk to, and diversion of resources from, defendant companies and their shareholders, employees and creditors.”
“The company’s functional currency is sterling as that is the currency of the primary economic environment in which the company operates. The group’s presentational currency is dollars as that is the currency of the primary economic environment in which the group operates.” (3) It is the position of Autonomy, not the group, that is relevant, given that the loss claimed by Autonomy is one arising out of its own liability to Bidco – not the liability of some group entity. And there is no warrant for the assertion at FN4583 of the Claimants’ Written Closing for the Main Trial that “what matters is that the environment in which the business as a whole primarily generated and expended cash was (and was stated to be) dollars”