Starboard Value, an activist fund managed by Jeff Smith, has recently acquired a significant stake in Autodesk, a graphics-design firm. This investment is estimated to be worth around $500 million. The fund has engaged in discussions with Autodesk’s board members regarding serious concerns related to the company’s disclosures concerning an internal investigation that led to the removal of its chief financial officer.
One of the primary concerns raised by Starboard Value involves the timing of Autodesk’s disclosure of the internal investigation findings. The investigation revealed that company executives had misled investors regarding free cash flow metrics and operating margins. The probe identified manipulation in reporting associated with the company’s contract billing structure, particularly the transition from annualized payments to upfront payments to enhance these metrics. The delayed disclosure of the investigation’s initiation and findings led to a 20% decline in Autodesk’s share price over a few weeks.
Starboard Value is particularly troubled by the timing of the disclosure, occurring shortly after the deadline for director nominations had passed. This timeline raises suspicions that Autodesk’s board intentionally withheld critical information from shareholders before the annual meeting. Such a move could restrict shareholders from nominating their candidates in a potential contested battle. As a result, Starboard Value is contemplating legal action in Delaware Chancery court to compel the reopening of the director nomination window and postpone Autodesk’s annual meeting, currently set for July 16.
In addition to addressing the disclosure timing issues, Starboard Value believes that Autodesk has the potential to enhance actual margin performance and enhance investor communications, ultimately strengthening the company’s stock performance. This sentiment aligns with the fund’s investment strategy, which has previously targeted technology firms like Salesforce and Splunk. Starboard Value emphasizes the importance of improving operational efficiency and transparency to bolster investor confidence in Autodesk.
Autodesk has a history of facing activist pressure, having reached settlements with activist investors in the past to avoid proxy contests. Furthermore, the company recently disclosed ongoing investigations by the Justice Department and the SEC. These regulatory probes add to the mounting challenges for Autodesk as it navigates the fallout from the internal investigation and addresses activist concerns raised by Starboard Value.
Starboard Value’s intervention in Autodesk underscores the importance of corporate transparency, shareholder communication, and governance practices. The fund’s stake and actions reflect a broader trend of activist investors holding companies accountable for their financial reporting practices and operational decisions. For Autodesk, addressing these concerns and implementing strategic changes will be crucial in restoring investor trust and maintaining long-term value for shareholders.