Business

Autonomy buy could make HP an Oracle takeover target

Hewlett-Packard’s decision to buy UK business software company Autonomy — and the subsequent 20 percent drop in stock price the news produced — puts the world’s largest tech company in a vulnerable position and may make it an Oracle takeover target, The Post has learned.

For shareholders and insiders there were few answers to explain why HP paid so much for Autonomy.

The Palo Alto, Calif., company trades at less than one times revenue, and announced late Thursday it was paying 10 times revenue, or more than $10 billion, for British software maker Autonomy.

Investors immediately ran for the exits, siphoning off $12.3 billion in shareholder value from the company.

Sources tell The Post this was no pre-emptive bid as Autonomy has been seeking a buyer for months.

A rival tech company this winter was in talks to merge with Autonomy and valued the business at the time at less than one-half of what HP paid, a source with direct knowledge of those talks said, adding that the price HP paid confused him.

Autonomy, a roll-up of acquisitions itself, is also seen as a business with nice but not must-have technologies, sources said.

There will likely not be a rival suitor, especially after peers saw the market react to HP’s deal, sources said.

“This is kind of a head-scratcher,” one source said. “This is what you do when the Dow is trading at 15,000.”

HP now has few ways to reverse its share decline, at least in the short term, sources said. The company cannot use its $13 billion in cash to buy back shares or will risk having its credit rating whacked.

Moody’s yesterday changed its outlook on HP, and its Aa2 rating, its third-highest rating, from stable to negative. Rival rating agency Fitch warned against share buy backs.

The bigger issue is what happens if HP’s shares do not recover.

One source close to the situation believes Oracle’s Larry Ellison, with former HP CEO Mark Hurd now on his team, is ready to pounce.

“If that stock keeps dropping, I think it is inevitable.”

On top of that, HP announced it was considering a spin-off of its PC division, a piece of business Oracle would not want to purchase.

“Spinning off the PC business makes a takeout much easier,” the source said, believing Oracle might make a hostile approach early next year, and if it succeeds, would sell off HP’s printer business.

“Perhaps in three years [the Autonomy acquisition] will turn out to be a smart acquisition. But the reality is in nine months HP will likely be defending itself in an Oracle fight,” the source said.

A banker in the space believes Oracle will likely make a hostile bid, but it will take a bit longer.

Why not wait for HP’s printer business, which has great profit margins, to decline after it spins off the PC business, the banker said, explaining that the two divisions are complementary.

Oracle would likely be able to buy HP and have it pass antitrust muster, albeit with concessions, an antitrust source said.

If Oracle bought HP, it would be better able to challenge IBM, sources said.