Deal Reached Over HP’s Buyout of Failing Firm

SAN FRANCISCO (CN) - At a hearing Friday, a federal judge gave final approval to a settlement between Hewlett-Packard Co. and its shareholders over the disastrous acquisition of Autonomy Corp.

The shareholders claimed Hewlett-Packard misled investors about the value of the tanking British software company. HP ended up taking an $8.8 billion hit, and blamed former Autonomy executives for misrepresenting its revenue projections two years before the deal closed.

HP was released from those claims in exchange for corporate governance reforms that include new due-diligence rules for mergers, creation of a senior executive-led risk management committee and modification of board-level oversight of mergers and acquisitions.

Lead attorney firms Cotchett Pitre and Robbins Geller will get about $2.7 million and $890,000 respectively in fees and costs.

The fee award hinged on whether the lawsuit played a substantial role in producing the reforms HP said it was already instituting when the class action was filed in 2012.

"Let's get real here. There was an $11 billion purchase that was written down to $8.8 billion," U.S. District Judge Charles Breyer said. "It would be surprising if a corporation, after engaging in a transaction that resulted in a staggering loss, wouldn't have addressed the question of what did we do wrong or what could we do differently."

Breyer said the value of the reforms could be questioned if the bungled acquisition had happened anyway.

"But I think that looking at a picture one has to be very, very careful about what would have happened absent certain factors," he said. "They might not necessarily have stopped the big fraud that occurred. But they may have changed governance on routine or complicated acquisitions. I'd say it's fair to say that the reforms were caused in part by this litigation and that rendered a substantial corporate benefit."

Breyer rejected a proposed settlement last year over a part of the deal giving Cotchett $18 million to help HP go after Autonomy. At the time, Breyer had said he didn't understand why that condition should be included in the settlement when HP could hire Cotchett after the case was resolved.

"I believe it today and I believed it then," Breyer said Friday. "If HP decided they wanted to use [Cotchett's] special expertise, they could go out and hire them."

He later added that he wasn't going to dictate what clients Cotchett can accept. "He's not committed to a life of poverty," Breyer said, laughing.

HP shareholder Rodney Cook had asked for at least $2 million for bringing the matter to Breyer's attention in his objection to last year's proposal.

But Breyer said Cook shouldn't get any credit, whether or not he agreed with Cook's theory that Cotchett had a conflict of interest. "I did it all by myself," Breyer said.

He told Cook's lawyer Kathleen Herkenhoff, "I must say your client is entitled to absolutely nothing in this case. When the proposed settlement came to me, I formed that opinion when I read it. It was right there in front of me. For Cook to take even partial credit is no different from saying the rooster should get credit for the sunrise."

When Herkenhoff said Breyer never explicitly said she couldn't argue that Cook deserved some credit, Breyer laughed and said, "If I had to talk every time a lawyer said something I disagreed with, we'd be here for months."

Follow @MariaDinzeo

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