Starboard Value, the activist fund led by Jeff Smith, has recently acquired a significant stake in graphics-design firm Autodesk. The fund has engaged in discussions with Autodesk’s board regarding serious concerns surrounding the company’s disclosures related to an internal investigation that resulted in the removal of its chief financial officer. According to sources familiar with the situation, Starboard’s stake is estimated to be valued at around $500 million.
The core issue revolves around the timing of Autodesk’s disclosure of the internal investigation findings, which exposed that executives had misled investors regarding the company’s free cash flow metrics and operating margins. The investigation revealed that executives had manipulated reporting linked to the company’s contract billing structure in an attempt to improve these metrics. This deception occurred as Autodesk transitioned from annualized payments to upfront payments. Consequently, the probe led to the replacement of the CFO, Deborah Clifford, who was reassigned to a different executive role within the company.
Autodesk initially disclosed in April that an internal investigation was underway concerning disclosure issues around the mentioned metrics. However, this disclosure came nearly a month after the investigation had commenced and after informing the Securities and Exchange Commission about the probe into its financial reports. Following this announcement, Autodesk’s shares experienced a 20% decline in value over the subsequent weeks. The company’s current market capitalization now hovers slightly below $50 billion. The delayed disclosure occurred just over a week after the deadline for director nominations had passed, prompting concerns within Starboard that Autodesk’s board intentionally withheld this information from shareholders before the annual meeting. This move could potentially limit shareholders’ ability to nominate their candidates in a contested setting.
In light of these developments, Starboard is contemplating taking legal action in Delaware Chancery court to compel Autodesk to reopen the nominating window and postpone the annual meeting. The meeting is currently scheduled for July 16. Additionally, Starboard believes that Autodesk can achieve actual margin improvement and enhance investor communications to strengthen the company’s stock performance.
Autodesk has faced activist investor scrutiny in the past. In 2016, the company reached a settlement with two activist investors, Sachem Head Capital Management, and Eminence Capital, to avoid a proxy contest. Earlier this year, Autodesk disclosed that it is currently under investigation by the Justice Department and the Securities and Exchange Commission.
Starboard Value’s intervention in Autodesk marks a significant development in the company’s ongoing challenges with transparency and governance. The activist fund’s concerns about the handling of the internal investigation and the subsequent disclosures are indicative of broader issues within Autodesk that may require further attention and remediation. It remains to be seen how Autodesk’s board will respond to the mounting pressure from Starboard and whether the company can address these issues effectively to restore investor confidence and drive sustainable growth.