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Hewlett-Packard Ends the Year with Justice Department Probe

The disastrous Autonomy acquisition keeps getting worse


Hewlett-Packard corporate buildingHow to describe Hewlett-Packard (NYSE:HPQ)? Well, the first word that comes to mind is: “disaster.” After all, the stock price is off about 47% for the year.

Unfortunately, it looks like the drama will continue into the New Year. According to The Wall Street Journal, the Justice Department is now investigating alleged accounting irregularities for the acquisition of Autonomy. Oh, and it also looks like the FBI is also involved.

HP shelled out $11 billion for Autonomy back in October 2011. Then a couple months ago, it wrote off a stunning $8.8 billion for the transaction, claiming it was misled by bogus accounting. Interestingly enough, HP did not provide much detail on the accounting shenanigans.

But the founder of Autonomy, Mike Lynch, thinks it’s a witch hunt.

And he may have a point. HP’s trashing of Lynch may be a clever attempt to deflect blame for it’s overpaying for Autonomy. Hey, companies like Oracle (NASDAQ:ORCL) and Dell (NASDAQ:DELL) passed on the deal because of valuation concerns.

Consider that HP actually has a long history of making terrible deals. Just some include Compaq, EDS, 3Com and Palm.

Yet, in light of the plunge in the stock price, it seems that the Autonomy issues are baked into the valuation. Actually, HP’s dividend yield is a juicy 3.7%, and the price-to-sales ratio is a mere 0.23.

But investors should still be wary. HP’s core PC business is likely to come under more pressure as Apple (NASDAQ:AAPL) iPads and Google (NASDAQ:GOOG) Android tablets continue to eat into the market. At the same time, the printer business has stalled.

It’s true that HP has a solid server business. But even this segment is facing a threat from such mega-players as Dell, Oracle and Cisco (NASDAQ:CSCO).

The irony is that the Autonomy deal was supposed to be the launchpad to find new sources of growth and offset the problems with PCs and printers. But, of course, it’s turning out to be just another failed strategy.

HP now has even fewer catalysts to get its shares back on track. For investors, it is still best to stay away.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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