Starboard Value, an activist fund managed by Jeff Smith, has recently acquired a substantial stake in the graphics-design company, Autodesk. The stake is estimated to be around $500 million and Starboard has engaged in discussions with Autodesk’s board regarding several serious concerns related to the disclosure of an internal investigation that resulted in the removal of the company’s CFO.
One of the primary issues that Starboard has raised pertains to the timing of Autodesk’s disclosure regarding the internal investigation. The investigation exposed that executives had misrepresented information related to the company’s free cash flow metrics and operating margins. This led to the removal of the CFO, Deborah Clifford, who was reassigned to a different position within the company. The investigation revealed that executives had altered reporting on the company’s contract billing structure to enhance metrics, specifically by shifting back to upfront payments from annualized payments.
Autodesk initially disclosed the internal investigation in April, almost a month after commencing it and informing the Securities and Exchange Commission (SEC) about the probe into its financial reports. The delayed disclosure resulted in a 20% decline in Autodesk’s share price over the subsequent weeks, bringing the company’s market capitalization just below $50 billion. Starboard believes that the delayed disclosure, which occurred shortly after the deadline to nominate directors closed, was a strategic decision by Autodesk’s board to prevent shareholders from nominating their own candidates ahead of the annual meeting. This has prompted Starboard to consider legal action in Delaware Chancery court to compel the reopening of the nominating window and potentially delay the annual meeting, which is currently scheduled for July 16.
Apart from the concerns surrounding the internal investigation and disclosure timing, Starboard also sees opportunities for Autodesk to drive margin improvement and enhance investor communications, ultimately boosting the company’s stock performance. Starboard has a history of investing in the technology sector, with stakes in major companies like Salesforce and Splunk. The fund’s intention to push for changes at Autodesk was first reported by the Wall Street Journal.
Autodesk has previously faced activist investors’ scrutiny in 2016 when it reached a settlement with two activist investors, Sachem Head Capital Management, and Eminence Capital, to avoid a proxy battle. The company disclosed earlier this year that it is under investigation by the Justice Department and SEC, adding to the mounting challenges that Autodesk is currently navigating.
Starboard Value’s involvement with Autodesk highlights the importance of transparency in corporate governance and the impact that effective communication and disclosure practices can have on shareholder value. The activist fund’s concerns over Autodesk’s internal investigation and disclosure issues underscore the need for companies to prioritize accountability and integrity in their financial reporting to maintain trust and credibility with investors and stakeholders.