Starboard Value, led by Jeff Smith, has recently acquired a substantial stake in graphics-design company Autodesk. The activist fund has engaged with Autodesk’s board to address several significant concerns regarding the company’s disclosures related to an internal investigation that ultimately led to the removal of its chief financial officer. Starboard’s stake in Autodesk is reportedly valued at around $500 million, with the activist expressing worries about the timing of the disclosure of the internal investigation findings. Particularly troubling for Starboard is Autodesk’s delayed revelation that executives had misled investors about the company’s free cash flow metrics and operating margins, leading to a sharp decline in Autodesk’s stock price.
The investigation unveiled that certain executives at Autodesk had manipulated reporting concerning the company’s contract billing structure. Specifically, executives had altered the reporting to show an improvement in free cash flow metrics and operating margins by shifting from annualized payments to upfront payments. The probe findings prompted the removal of Autodesk’s CFO at the time, Deborah Clifford, who was reassigned to a different executive position within the company. Autodesk initially disclosed the commencement of the internal investigation in April, nearly a month after it was initiated, and after informing the SEC of the probe into its financial reports. This delayed disclosure resulted in a 20% decline in Autodesk’s share price.
Starboard Value is reportedly considering legal action in Delaware Chancery court to compel Autodesk to reopen its nominating window and postpone the annual shareholder meeting. The activist fund is troubled by the timing of the disclosure, as it occurred shortly after the deadline for director nominations had passed. This maneuver could potentially restrict shareholders from nominating their candidates in a contested election, leading to unease within Starboard and suggesting a deliberate decision by Autodesk’s board to withhold information from investors. The annual shareholder meeting is set to take place on July 16, raising further questions about the transparency and governance practices at Autodesk.
In addition to addressing the disclosure issues and governance concerns, Starboard Value believes that Autodesk has the potential to enhance its margins and strengthen its investor communications, ultimately boosting the company’s stock performance. Starboard has a history of investing in the technology sector, with stakes in prominent companies like Salesforce and Splunk. While Starboard’s engagement with Autodesk has been met with skepticism, given the past activist involvement with the company, the fund remains committed to advocating for changes that could benefit all shareholders. Moreover, Autodesk’s ongoing investigations by the Justice Department and SEC add another layer of complexity to its current challenges, underscoring the importance of addressing governance and transparency issues promptly.