The inside story of a rotten Hewlett Packard deal to be told in trial of fallen British tech star

SAN FRANCISCO (AP) — An $11 billion acquisition that backfired on Silicon Valley pioneer Hewlett Packard more than a decade ago will be resurrected Monday during a trial that will explore whether the deal was an illegal rip-off or a case of botched management.

The criminal trial in San Francisco federal court revolves around HP's acquisition of British software maker Autonomy, a deal that was celebrated as coup when it was announced in 2011, only to blow up into a costly debacle.

Before HP wrapped up the deal, Meg Whitman was hired to be CEO of the company started 85 years ago by Bill Hewlett and Dave Packard in a Palo Alto, California, garage that has become a Silicon Valley shrine.

Whitman, who rose to fame and fortune while running online commerce site eBay in its formative years, had hoped the Autonomy deal would bolster her efforts to lift HP out of the doldrums, but instead it became an albatross that dragged the company down.

As HP's fortunes continued to sag, Whitman laid off thousands of workers and eventually engineered a breakup that split the storied company into two entities in 2015. She stepped down as CEO of the spun-off company, Hewlett Packard Enterprises in 2018.

The alleged villains in the trial are former Autonomy CEO Mike Lynch, who once was lionized as shining example of British ingenuity, and Stephen Chamberlain, Autonomy's former vice president of finance. They are both defending themselves against 16 felony counts of fraud and conspiracy in a trial expected to run until late May or June and include testimony from more than 40 witnesses.

If convicted by a jury, Lynch and Chamberlain each could face a sentence of more than 20 years in federal prison.

Autonomy's former chief financial officer, Sushovan Hussain, was sentenced to five years in prison in 2019 after being convicted on 16 criminal counts of fraud and conspiracy.

The trial targeting Lynch and Chamberlain is also expected to cast a spotlight on Whitman, who dipped into her estimated fortune of $3 billion to finance an unsuccessful campaign to become California governor as the Republican Party nominee in 2010.

Not long after that political setback, Whitman joined HP's board and then was tapped to replace company CEO Leo Apotheker, who had negotiated the Autonomy acquisition before being replaced in September 2011 just before the deal was completed.

At the time, HP was struggling to remain relevant amid a technological shift to mobile computing being driven by the then-rising popularity of smartphones. The upheaval depressed demand for desktop and laptop computers, a market that had been one of HP's financial cornerstones. In an effort to lessen its dependence on PCs, HP snapped up Autonomy to gain ownership of software focused on helping businesses quickly sift through vital information stored in email, phone records and other repositories.

But HP uncovered evidence that Autonomy had been cooking the books to inflate its value after the takeover was completed, prompting Whitman to write off nearly $9 billion of the acquisition price. It would also spur accusations of criminal conduct, leading to the indictment of Lynch and Chamberlain in 2018.

The trial was delayed during a civil trial about the alleged fraud in London that culminated in a judge siding with HP in a 2022 ruling that indicated the damages would be less than the $5 billion (3.9 billion pounds) that HP wanted. The final amount of damages hasn't been determined.

Lynch, 58, was extradited to the U.S. last May, and has since been living under court-mandated restrictions in San Francisco while being allowed to remain out of prison on $100 million bail bond secured by $50 million in cash while awaiting trial. Court documents estimate that Lynch made more than $800 million on Autonomy's sale to HP.

In the London civil trial, Lynch maintained he never participated in any underhanded dealings at Autonomy and painted himself as a scapegoat for a bumbling management team led by Whitman, who he depicted as being “out of her depth." Lynch also hailed Autonomy as “one of the most successful companies England has ever produced.”

Whitman, 67, denigrated Lynch as an unstable executive whose complaints about her decisions "became less and less focused and grounded in reality” before she ousted him from HP in 2012. She isn't expected to be called to testify in Lynch's criminal trial, even though her leadership of the company is likely to be put under a microscope during the proceedings.