Author: The New Economy

Investors sue Lyft amid share price slump

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Investors in ride-hailing app Lyft are suing the company over claims that it overhyped its market share ahead of its much-anticipated initial public offering (IPO).

Since its IPO in March, Lyft’s share price has slid

Bloomberg reported that two class-action complaints had been filed against Lyft, its officers and directors, and underwriters in San Francisco on April 17. Lyft claimed in its prospectus that the company held 39 percent of the market at the end of 2018, but investors allege the company overstated this figure.

At the time of publishing, Lyft had not responded to a request for comment.

Since its IPO in March, Lyft’s share price has slid from an offering price of $72 a share to around $59 when markets closed on April 17. One major concern of analysts is the threat posed by rival Uber, which has officially filed for its own IPO.

According to Markets Insider, Susquehanna analyst Shyam Patil said that while Lyft works in a “very large and growing market”, the dynamic of being the second best in a sector that’s all about scale is worrying. “[The] extremely competitive nature of the space and going up against an aggressive #1 player in Ubermakes it tough to predict future customer acquisition costs as well as rider and driver retention,” Patil said, giving Lyft’s share price a target of $57.

The lawsuits against Lyft also mention the company’s failure to tell investors that it would soon be forced to recall thousand of bikes over braking issues. Bike-share operator Motivate, which is owned by Lyft, pulled its electric bikes from New York City, San Francisco and Washington, DC, after a “small number” of riders reported a braking problem that caused the front wheel to lock up.

Lyft was the first of a stampede of tech unicorns to list on the public markets this year, but it may soon be overshadowed by other long-awaited IPOs, such as digital scrapbook Pinterest and cloud videoconferencing service Zoom, which will both make their market debuts on April 18. Following Lyft’s decline, their performance will likely determine whether investors remain optimistic about new tech IPOs.

Apple and Qualcomm settle long-running dispute

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Tech giants Apple and Qualcomm have reached eleventh-hour settlements on a series on long-running lawsuits with billions of dollars at stake.

Qualcomm’s shares jumped 23 percent following the announcement

The two firms have been at one another’s throats for three years over the way that Qualcomm licenses its technology.

Apple has accused Qualcomm of exploiting patents to maintain a monopoly on modem chips that allow mobile phones to connect to data networks, while Qualcomm has alleged that Apple used its technology without paying for it.

News of the settlement came as the two firms were beginning yet another trial in San Diego’s federal court. The case was set to last around a month, and could have cost either firm billions of dollars.

All litigation worldwide has now been dismissed, according to a joint statement by the two tech giants. The settlement includes an undisclosed payment from Apple to Qualcomm, along with a six-year licensing deal and a multiyear supply agreement. The latter means that Qualcomm chips are likely to be used once again in Apple’s products.

Apple’s iPhone was formerly powered by Qualcomm chips, but due to the dispute, in 2016, the company began to use hardware from rival Intel in some of its models.

Several hours after the settlement was announced, Intel announced that it would be exiting the modem chip business, clearing the path of competition for Qualcomm in supplying hardware to Apple.

The settlement may help Qualcomm to regain the prominent supply position that it held in the early 2010s, before Intel stole much of its market share. It may also help Apple to integrate 5G technology into its iPhone models earlier than expected, as Qualcomm has a 5G modem chip available for shipping now, whereas Intel was not expecting to have the chip ready until next year.

Qualcomm’s shares jumped 23 percent following the announcement, while Apple’s remained flat.

AT&T sells its stake in Hulu, leaving Disney in control

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US telecoms giant AT&T has sold its nearly 10 percent stake in Hulu back to the streaming service for $1.43bn. The move, announced on April 15, leaves Disney in control of the company with the 60 percent stake it obtained when it bought 21st Century Fox.

The news comes just a week after Disney announced details about its own much-anticipated streaming service

“We thank AT&T for their support and investment over the past two years and look forward to collaboration in the future,” said Hulu CEO Randy Freer in a statement. AT&T gained its stake in Hulu after purchasing Time Warner, now known as WarnerMedia.

Telecoms firm Comcast owns the remaining 30 percent of Hulu, but MarketWatch reported there is speculation that Comcast will sell its shares in the company, leaving Disney the sole owner.

The news comes just a week after Disney announced details about its own much-anticipated streaming service, Disney+. The new service, which will launch in North America in November, will include content from Disney franchises such as Pixar, Marvel, National Geographic and Star Wars, as well as from Fox.

Kevin Mayer, the chairman of Disney’s direct-to-consumer unit, told investors that the company would likely sell Disney+, Hulu and streaming sports network ESPN+, as a bundle. This could be good news for consumers, who are facing higher costs as the market for streaming services becomes increasingly fragmented.

Currently, Hulu is the third most popular streaming service behind Netflix and Amazon Prime, but it could soon take a backseat to Disney+. According to a report in March by Vox’s Todd VanDerWerff, Hulu is the key to Disney’s streaming strategies.

“Disney+ might end up being built around Hulu, but Hulu will be central to whatever Disney+ becomes in the way that HBO will be central to whatever WarnerMedia’s streaming service becomes,” VanDerWerff wrote.

Hulu’s valuation of $15bn is just a fraction of Netflix’s $152bn, but with Disney on its side, whether or not it undergoes a rebranding, Hulu could finally level the playing field.

Foxconn shifts iPhone production to India

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Foxconn Technology Group will begin mass-producing the iPhone X in India this year, a strategic move for the manufacturing firm that has historically concentrated production in China.

Foxconn’s relocation marks a tactical change for Apple, which has previously concentrated iPhone manufacturing efforts in China

Speaking at an event in Taiwan on April 15, Foxconn Chairman Terry Gou said that Prime Minister Narendra Modi had invited him to India as the company prepares to shift iPhone manufacturing there.

Foxconn currently has two assembly sites in India, one located just south of Chennai and the other on the outskirts of Coimbatore, where it makes devices for Xiaomi and Nokia. According to a report by Bloomberg, the company will trial production of the iPhone X at its Chennai factory before launching a full-scale manufacturing operation.

Foxconn’s relocation also marks a tactical change for Apple, which has previously concentrated iPhone manufacturing efforts in China. However, competition from local firms such as Huawei, together with on-going trade tensions between China and the US, has forced the company to examine alternatives.

India is the fastest-growing smartphone market in the world, but technology manufacturers have shunned it in favour of China due to higher US import duties on India products. It appears that Apple has weighed the balance of probabilities and decided that India is a more fruitful option, despite these levies.

A slowdown in the Chinese economy, in comparison to Modi’s drive to boost Indian production, will have also played a part in that decision. The prime minister’s Make in India campaign has faltered in a number of areas, but smartphone production has shown strong growth, with 450,000 jobs created in the mobile industry between 2014 and 2018.

“In the future we will play a very important role in India’s smartphone industry,” Gou said at the Taiwan event. “We have moved our production lines there.”

He added that the company is in discussion with the Indian government with regards to investment. Foxconn currently has a dozen software experts in India, and plans to increase that figure to 600, Gou said.

It’s not yet clear what impact Foxconn’s move will have on Apple’s China operations, although it is likely to worsen the economic stagnation the country is facing. It will also impress upon the Chinese government the importance of repairing its trade relationship with the US, lest it lose a substantial proportion of its manufacturing sector to India or other countries.

Jack Ma’s digital health insurance start-up is growing rapidly in China

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Ant Financial’s mutual aid health insurance platform, Xiang Hu Bao, reached 50 million users in less than six months as billionaire Jack Ma sets his sights on disrupting China’s health insurance industry.

China’s traditional insurance market is primed for disruption

Ma’s Ant Financial launched Xiang Hu Bao, which literally means “mutual protection”, in October 2018. The platform is now available within Ant’s popular payment app, Alipay.

Alipay announced on April 11 that in light of its quick growth the platform aims to provide basic health plans to 300 million people over the next two years. According to Bloomberg, that would represent more than 20 percent of China’s rapidly ageing and increasingly ailing population.

Users of Xiang Hu Bao can sign up for free to access a basic health plan, which, according to Alipay, “complements other premium health insurance offerings”. The platform’s participants act as a collective that share the expense evenly when one falls critically ill.

“Traditionally, fraud and a lack of transparency have made it difficult for mutual aid platforms to effectively benefit those in need. In particular, low-income groups could not afford the premiums and advance payments that are typically required with traditional commercial health insurance offerings,” Alipay said in a statement.

Currently, nearly half of Xiang Hu Bao’s 50 million participants are migrant workers, and almost a third are from rural areas. Alipay’s blockchain technology has also increased “transparency and trust” among users by ensuring the authenticity and notarisation of evidence supporting claims made on the platform, the firm said.

China’s traditional insurance market is primed for disruption, according to a report by insurance firm Aviva. With consumers increasingly drawn to digital payments, the country’s insuretech market has grown swiftly. By 2020, insuretech premiums are predicted to reach more than 1.1trn RMB ($164bn).

In health insurance, the sector is beginning to heat up with more and more start-ups emerging, including from WeChat-owner Tencent. But with its huge user base and vast resources – Ant’s last funding round reportedly valued the company at $150bn – Ant Financial is in a good position to rise to the forefront of the industry.

Fiat Chrysler teams up with Tesla in bid to sidestep EU emissions fines

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Fiat Chrysler (FCA) has partnered with Tesla in a multimillion-euro tie-up that will allow it to avoid large fines for breaking new stricter EU emissions laws.

This move will bring FCA’s fleet under the permissible threshold for emissions, under regulations that come into force next year

Under the terms of the deal, which was first reported by the Financial Times, FCA’s cars will count as part of Tesla’s fleet, meaning the Italian carmaker can report a lower average emissions figure.

This move will bring FCA’s fleet under the permissible threshold for emissions, under new regulations that come into force next year. By 2021, all car manufacturers must achieve an average of 95g of CO2 per kilometre or face an excess emissions premium of €95 ($106) per gram above the set limit.

According to data from Jato Dynamics, FCA is currently a long way above that high-water mark, averaging 123g of CO2 per kilometre in 2018. UBS said the company had the “highest risk of not meeting the target”. FCA has also lagged behind other carmakers in electric vehicle development, further raising its emissions profile.

Under EU regulations, carmakers are able to pool their fleets in order to bring average emissions beneath the chargeable limit, an option that FCA has demonstrably taken through this tie-up with Tesla. It is the first auto manufacturer in Europe to do so through the so-called open pool system.

“The purchase pool provides flexibility to deliver products our customers are willing to buy while managing compliance with the lowest cost approach,” FCA said in a statement.

According to a declaration published on the EU’s website, the two companies partnered on February 25, with FCA announcing that Tesla would be counted in its fleet of brands, which also includes Alfa Romeo, Jeep and Maserati. While the document does not give financial details, it is thought the deal is worth hundreds of millions of euros.

This is not the first time that Tesla has leveraged its eco-credentials in order to cash in from other carmakers. The electric automaker earned $103.4m last year by selling zero emissions vehicle credits under a programme operated in its home state of California.

Given its success in the US, it is unsurprising that Tesla is now opting to replicate this business model within Europe. It does raise questions, however, as to the efficacy of EU regulations in reducing emissions. Indeed, by teaming up with Tesla, FCA has been able to circumvent fines without yet taking significant action to reduce its average vehicle CO2 output.

Boards under pressure from rising tide of cybercrime

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With cyberattacks becoming more commonplace and costly and GDPR having introduced harsher penalties for data breaches, boards are under greater pressure than ever before. Investors are increasingly demanding that directors oversee cybersecurity risks, while regulators are threatening to hold them to account. A cyberattack, therefore, may not only damage a company’s reputation, but that of its directors too if they are found to be personally liable. As if that weren’t enough, CEOs and their teams are being preyed on directly by cybercriminals using ever more sophisticated scams.

No matter how much IT teams shore up their defences, they can only hold the line so far

The number of business email compromise attacks grew by 226 percent in the final quarter of 2018, according to Proofpoint. Often known as ‘CEO fraud’, they involve emails purporting to come from a senior director and instructing funds to be transferred into a third-party account. CEOs and board members are among the key targets for such attacks, as they are the decision makers who hold the purse strings and whose details are openly available online.

Multiple lines of defence
In one case last year, the CEO of film company Pathe’s Dutch arm was sacked after authorising payments of over €19m ($21m) into a bank account in Dubai. Dertje Meijer and the company’s financial director Edwin Slutter believed they were acting on instructions from the company’s Paris headquarters and that the money related to an acquisition that was underway. Both lost their jobs but an investigation found that they were the victims of fraud and Slutter later filed for unfair dismissal.

Targeted attacks like this demonstrate the new reality of the cyber landscape. No matter how much IT teams shore up their defences, they can only hold the line so far. As cybercriminals are well aware, it is people who are the weakest link. Many of the biggest security breaches are now due to human error or insider threats, rather than technical failures.

It is clear that cybersecurity is no longer just an IT issue – it must now be recognised as a company-wide challenge, and one that needs to be overseen at the highest level. Dealing with threats like these requires a more co-ordinated approach than before. Firewalls and anti-virus software are critical, but companies also need to have the right policies and staff training programmes in place too.

Take those spoof CEO emails, for instance. While the IT department can take steps to stop them reaching an individual’s inbox, directors and staff will need to be aware of the risk and know what to look out for. Companies should have a process for reporting suspicious emails and – because criminals are becoming more cunning and it may not be possible to prevent every attack – they should have measures in place to minimise the impact.

Of course, cybersecurity is very much a new field for most directors and a recent report from the UK Government found that even boards at many big companies are unsure of its implications. The Cyber Governance Health Check 2018 found that only 16 percent of FTSE 350 boards showed a “comprehensive understanding” of the potential disruption and financial impact resulting from cyberattacks.

As cyberthreats get too close for comfort, it is critical that CEOs step into a discovery phase and bring themselves up to speed. They must familiarise themselves with the basics of cybersecurity so they are aware of the risks and can make informed decisions. Starting a dialogue with their technical team and working together to develop an integrated approach is a good starting point.

A team effort
Cybersecurity cannot be left to one department, but depends on people throughout the business playing their part – from frontline staff to the finance and HR teams. And senior staff in all departments need be aware of their cyber vulnerabilities, just as they are of their budgets. It is a good idea to create a framework that brings together all cybersecurity defence tools, such as malware protection, browser software and patch tools, with other security procedures such as staff training, granting or removing access rights.

Having comprehensive policies and procedures in place and ensuring everyone understands their roles and responsibilities is vital, as is keeping records for compliance purposes. It is also important to have monitoring in place and a system of alerts – for example, if patches have not been updated, or other procedures have not carried out. Carry out regular audits and try to achieve a recognised standard such as Cyber Essentials or ISO/IEC 27001:2005.

As cybercrime becomes more complex, CEOs need to lead the fightback. Only if boards work with IT teams to develop a coordinated approach will companies be in the best possible position to defeat the growing threat.

Lyft’s IPO marks the beginning of open season for unicorn debuts

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US ride-hailing firm Lyft stormed onto the NASDAQ index on March 29, with shares opening 20 percent higher than pundits had expected.

Some market experts believe that Lyft’s IPO is the beginning of a new golden era for tech stocks

Lyft had originally priced its shares at $72, but it traded in a $78.02-$88.60 band before ending the day at $78.29, an 8.7 percent increase on the issue price. A total of 6.1m shares changed hands during the day’s trading.

The company’s much-anticipated debut values it at $24bn on a fully diluted basis, including restricted shares and employee options. It was the largest US tech IPO since Snap Inc, the parent company of image sharing app Snapchat, went public in 2017, valuing itself at $29bn.

Some market experts believe that Lyft’s IPO is the beginning of a new golden era for tech stocks, after 2018 proved to be a lacklustre year for mega Silicon Valley debuts. John Jagerson wrote in a post for Investopedia: “[Lyft’s] inflated opening price confirmed that traders were both excited about the company’s prospects and starved for new stocks to invest in.”

Traders are now unlikely to go hungry for the rest of 2019, with companies including Pinterest, Airbnb and Slack expected to follow in Lyft’s footsteps in a series of blockbuster IPOs in the coming months. These ‘unicorn’ firms, so called because they are valued at more than a billion dollars, have all avoided public markets since their inception, preferring to chase private funding.

Some, such as Airbnb, had announced IPOs several years ago, but had stalled due to unfavourable market conditions. Wall Street’s sudden fall into a bear market in 2018 spooked investors and flattened interest in high-value debuts, a trend that has now been reversed with Lyft’s IPO.

The ride-hailing firm, which controls around 40 percent of its market in the US, will soon have competition in the stock market, as its biggest rival Uber is also preparing to go public. Analysts have valued the company at $120bn, with some suggesting it could make its debut as soon as next month.

Lyft and Uber have been at loggerheads for several years now, but when Uber was wracked by a series of scandals in 2017, Lyft took the opportunity to build its market share. The company is still a long way into the red though, with losses mounting to $911m in 2018.

“Lyft is underestimated in terms of how quickly I think it will go profitable,” Ben Horowitz, co-founder of Andreessen Horowitz, said. His venture capital firm was one of Lyft’s earliest investors back in 2013.

Horowitz added that his firm had chosen to back Lyft rather than Uber “because we believed in the character and the culture of the founders, in a way we didn’t in Uber”.

Horowitz’s comments indicate that today’s venture capital firms are less concerned with profitability and more interested in the DNA of a potential investment. Overspending at a company level is a relatively easy issue to fix, with the help of some savvy financial advisors and a comprehensive cost-cutting strategy. An unsavoury public image, or a series of media scandals, is a much greater, and costly, problem to fix, and may require a significant staff overhaul, as was the case with Uber.

While Lyft doesn’t have a completely clean slate – its staff were accused of spying on passengers last year– it’s in a different league than Uber when it comes to public image. The latter will be under close scrutiny between now and its stock market debut; if it slips up, this could allow Lyft to build upon its already impressive market capitalisation and steal even more of Uber’s market share.

AstraZeneca strikes $6.9bn deal with Japanese drugmaker

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AstraZeneca has signed a deal worth up to $6.9bn with Japanese drugmaker Daiichi Sankyo to develop and distribute the cancer drug trastuzumab deruxtecan.

Both companies will share worldwide development and commercialisation costs

Under the terms of the agreement, AstraZeneca will pay $1.35bn to Daiichi for the cost of the drug, with a further $5.6bn to be paid if regulatory and sales milestones are met.

The Anglo-Swiss drugmaker is planning to fund the deal using the proceeds of a $3.5bn share issue.

Both companies will share worldwide development and commercialisation costs, with Daiichi retaining exclusive distribution rights in Japan.

Daiichi’s shares soared by 16 percent to JPY 5,100 ($46) on the news. The company’s stock value has increased by 45 percent since the beginning of the year thanks to optimism surrounding the drug’s cancer-fighting capabilities.

AstraZeneca’s chief executive Pascal Soriot said in a statement that trastuzumab deruxtecan “could become a transformative new medicine for the treatment of HER2 positive breast and gastric cancers”. It could also be used to treat lung and colorectal cancers.

It is thought that Daiichi will take responsibility for sales of the drug in the US, some parts of Europe and any other markets where it already has affiliates. AstraZeneca is expected to take ownership of sales in all other markets worldwide, including China, Australia, Canada and Russia.

Daiichi is forecasting peak annual sales of $4.5bn for trastuzumab deruxtecan. The drug was classified as a “breakthrough therapy” by the US’ Food and Drug Administration in 2017, meaning it can be expedited through the organisation’s approval process.

The tie-up comes at a fortuitous moment for Daiichi and AstraZeneca, as both companies have been seeking to push further into the oncology market after patents on other lucrative drugs expired earlier this year. AstraZeneca has seen its sales decline in recent years after the patent on Crestor, its top-selling cholesterol drug, expired, while Daiichi faced a similar issue with its blood pressure remedy Benicar.

This latest partnership appears to be a wise strategic move for both AstraZeneca and Daiichi, in that it allows both to push further into the lucrative oncology drug market, as well as increasing the reach of what many believe to be a breakthrough treatment for several types of cancer.

Controversial copyright legislation passed by European Parliament

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A much-debated directive that introduces sweeping changes to copyright enforcement has been approved by European lawmakers, despite heavy opposition from technology platforms such as Google and YouTube.

It has been delayed on several occasions due to rejection of certain elements of the text from a range of EU countries

The European Copyright Directive was voted into law by 348 MEPs on March 26. 274 MEPs opposed the bill.

Copyright legislation was first introduced by the European Parliament in 2001, with the aim of protecting intellectual property and ensuring that content producers were appropriately remunerated for their work. In 2012, the European Commission concluded that the existing legislation was not satisfactory in the face of digital market changes, and sought an update to the directive.

Work began to draft a new directive in 2014, but it has been delayed on several occasions due to rejection of certain elements of the text from a range of EU countries. Articles 11 and 13 have been particular points of contention, not solely for European governments, but also for tech giants and internet freedom activists.

Article 11, known as the ‘link tax’ by opponents, compels platforms such as Google to pay licensing fees to publications whose work is aggregated by services like Google News. Many publishers and content creators support this article, claiming that it will put an end to their work being re-published for free and without consent on other sites.

Article 13, referred to as the ‘upload filter’ by critics, requires sites that host user-generated content to take steps themselves to prevent copyrighted material from being uploaded without permission. This effectively shifts much of the onus for copyright prevention from the person sharing the content, to the platform on which it is shared. Under this legislation, platforms could be held liable for users’ copyright violations.

The latter article has been the target of significant vitriol from companies such as Google and Amazon, which have condemned the measure for making their business models unworkable. Both had also threatened to shutter their European operations if the directive was passed.

In a bid to appease critics, European lawmakers made a number of small changes to the two controversial articles earlier this year, which included creating a list of exemptions to Article 13. It is not yet clear how these exceptions will be integrated into content filters on technology platforms.

Google described the tweaked legislation as “improved” but said it “will still lead to legal uncertainty and will hurt Europe’s creative and digital economies”.

In a statement, the tech giant added: “The details matter, and we look forward to working with policy makers, publishers, creators and rights holders as EU member states move to implement these new rules.”

Not all campaigners were satisfied with the changes, however. MEP Julia Reda, who has been one of the most vocal critics of the legislation, described March 26 as “a dark day for internet freedom”.

The directive must be approved by the Council of the European Union before it can pass into law. A vote is expected in mid-April.

Fossil fuels are filling the gap in rising energy demand

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A surge in global energy requirements in 2018 drove carbon dioxide emissions to record high levels, according to the world’s energy watchdog.

The gap between demand and available energy was plugged predominantly by fossil fuels

The International Energy Agency (IEA) has said in a report released on March 26 that energy demand across the globe rose 2.3 percent last year, the fastest growth rate since 2010. The gap between demand and available energy was plugged predominantly by fossil fuels, which pushed carbon emissions to a landmark high of 33 billion tonnes in 2018. This figure marks a 1.7 percent increase from the previous year.

The Paris-based watchdog confirmed that demand for coal, oil and natural gas all increased last year, the burning of which subsequently contributed to increased emissions. An additional 560 million tonnes of carbon dioxide was released into the atmosphere in 2018, the same amount that is produced annually by the global aviation sector.

China, India and the US saw the largest increases in emissions, while areas such as the UK and EU saw emissions decline in 2018.

Severe fluctuations in weather patterns contributed to the rise in energy demand and emissions, as countries that experience extreme temperatures in summer and winter relied more heavily upon domestic heating and air conditioning systems.

While renewable power generation grew around seven percent last year, this was not enough of an increase to keep pace with the rise in energy demand. According to the report, growth from wind and solar in 2018 only met around 45 percent of the increased energy demand.

Globally, renewable sources such as wind, solar, hydro and biopower accounted for 26 percent of energy generation, while coal made up 38 percent of the total.

The IEA has identified coal as the “single largest source of global temperature increase,” accounting for a third of the rise in emissions last year.

“Despite major growth in renewables, global emissions are still rising, demonstrating once again that more urgent action is needed on all fronts — developing all clean energy solutions, curbing emissions, improving efficiency, and spurring investments and innovation, including in carbon capture, utilisation and storage,” said Dr Fatih Birol, the IEA’s executive director, on the organisation’s website.

Not only does the use of fossil fuels to meet additional energy needs negate progress made in the renewable energy field, but its polluting effects also take us further away from achieving climate goals set out in the Paris Agreement.

Ironically, part of the reason that energy demand has increased is to counteract the impact of climate change – scientists believe that more extreme weather patterns are a product of global warming. By burning fossil fuels to power domestic heating and cooling systems, and producing more emissions, we are exacerbating the original issue. It is therefore imperative than energy demand declines, or renewable energy output increases to make up the shortfall, lest we find ourselves entrapped in a vicious cycle of ever-increasing fossil fuel use.

Hewlett Packard brings $5bn case against Mike Lynch

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Hewlett Packard (HP) and technology entrepreneur Mike Lynch are poised to begin a $5bn court battle over the sale of Lynch’s company Autonomy to the computing giant in 2011.

Lynch blamed HP for the devaluation of Autonomy, claiming that the computing firm had mishandled the integration process

The case, which has been described as the UK tech trial of the century, will commence in London’s High Court on March 25. HP is seeking around $5bn in damages from Lynch, who stands accused of fraud and overvaluation of Autonomy.

HP acquired enterprise software business Autonomy from Lynch for $12bn in 2011 in a transaction that earned Lynch the nickname ‘Britain’s Bill Gates’. It is alleging that Lynch, together with Autonomy’s chief financial officer at the time, Sushovan Hussain, manipulated accounts and engaged in improper transactions that artificially inflated Autonomy’s revenues. This led HP, it claims, to pay an extra $5bn to acquire the company.

The following year, HP wrote $8.8bn off the value of Autonomy, which it said it was forced to do as a result of “serious accounting improprieties, disclosure failures and outright misrepresentations” of the software firm’s finances before the acquisition.

Both Lynch and Hussain deny the allegations, and Lynch is counter-suing for $150m for reputational damage. In a 326-page defence filing, Lynch blamed HP for the devaluation of Autonomy, claiming the computing firm had mishandled the integration process and had been distracted by a series of “disruptive boardroom scandals, management shake-ups and failed mergers”.

A spokesperson for Lynch said: “Mike Lynch is pleased to finally have the opportunity to respond in court to HP’s accusations. There was no fraud at Autonomy.”

He added: “The real story is that HP, after a history of failed acquisitions, botched the purchase of Autonomy and destroyed the company, seeking to blame others. [Lynch] will not be a scapegoat for their failures.”

On the eve of the London trial, fresh criminal charges have also been filed against Lynch by US federal prosecutors over the HP acquisition. Following a new indictment filed in a San Francisco court on March 22, Lynch now stands accused of securities fraud, wire fraud and conspiracy, in addition to 14 charges lodged in November 2018 by the US Department of Justice (DoJ).

If convicted in the US, Lynch could face up to 25 years in prison. Hussain has already been convicted of 16 counts of wire and securities fraud by the DoJ, but his sentencing has been postponed. He is appealing the verdict.

Lynch vigorously denied the new US charges, while his spokesman described them as “baseless and egregious”. A trial is expected to take place in 2020, in which the DoJ will seek to confiscate $804m from Lynch, which it says was obtained fraudulently.

The cases will be watched closely by the US and UK technology sectors, as Lynch is heavily integrated into both. Until November 2018, he was a director of Darktrace, a cybersecurity company valued at $1.65bn. He remains a director of Luminance Technologies, a software firm that uses AI to decipher legal documents, and Invoke Capital, a technology investment firm.

If Lynch is found to be liable in UK court, this will have far-reaching financial and reputational ramifications for him and most likely for the above-mentioned businesses. However, the US charges are far more severe, in that they are of a criminal, not civil, nature, and could result in jail time for Lynch. Both cases could lead to more widespread investigations if fraudulent practices are suspected at any of the companies Lynch is, or has been, associated with.