Due Diligence Anyone?

due diligence

Function: noun

Date: 1903

1 : the care that a reasonable person exercises under the circumstances to avoid harm to other persons or their property
2 : research and analysis of a company or organization done in preparation for a business transaction (as a corporate merger or purchase of securities)

 It seems that back in 2008 HP forgot about this very important term and M&A requirement when it acquired Electronic Data Services Corporation (EDS .) 

Recently, a British High Court ruled that EDS was at fault for a bungled customer relationship management (CRM) implementation at British Sky Broadcasting Group (BSkyB) back in 2000.  This bungling, which was due to EDS’ misrepresentation of how long the implementation of the system would take in order to win the contract, will cost HP $460 million.  Ouch.

BSkyB terminated the work in 2002 after the EDS timeline was well past the due date and went ahead and completed the implementation on their own in March 2006.  In the meantime, they started legal action against EDS in 2004, went to trial in 2007, and the British High Court ruled in their favor in January 2010.

Looking at HP’s performance, it is apparent that for various consecutive quarters, EDS emerged as a smart purchase by HP, as the company’s service unit was the only growing business line. But the takeover came with some extra baggage, which included a hefty lawsuit.

This baggage should definitely have been vetted out and acknowledged in the $13.9 billion acquisition price.  I thought it was a high price even before learning about this. 

It seems very apparent to me that someone, or some group, did not do their research (re: due diligence) and this ticking bomb went unnoticed or disregarded for quite some time.

I can hear the EDS M&A lawyers laughing now….