Starboard Value, led by Jeff Smith, has recently acquired a significant stake in graphics-design firm Autodesk. The activist fund has engaged with Autodesk’s board regarding serious concerns related to the company’s handling of an internal investigation that resulted in the removal of its chief financial officer. Sources familiar with the matter have disclosed that Starboard’s stake in Autodesk is estimated to be around $500 million.
Concerns Over Disclosure Timing
One of the key issues that Starboard Value is raising pertains to the timing of Autodesk’s disclosure surrounding the internal investigation. The investigation uncovered that executives had provided misleading information to investors regarding the company’s free cash flow metrics and operating margins. This led to the ousting of the then-CFO, Deborah Clifford, who was reassigned to a different role within the company.
The probe revealed that executives at Autodesk had manipulated reporting related to the company’s contract billing structure. Specifically, Autodesk had transitioned from annualized payments to upfront payments in an effort to enhance certain financial metrics. The fact that Autodesk only disclosed the investigation a month after its initiation, following a significant decline in its stock price, has raised concerns within Starboard.
Shareholder Rights Concerns
Starboard Value is particularly troubled by the delayed disclosure, which occurred shortly after the deadline for shareholder nominations. This sequence of events has led to suspicions that Autodesk’s board intentionally withheld information in order to restrict shareholders’ ability to nominate directors. Starboard is contemplating legal action to compel the reopening of the nominating window and the postponement of Autodesk’s annual meeting.
The concerns raised by Starboard Value extend beyond the handling of the internal investigation. The activist fund believes that Autodesk has the potential to improve its actual margin performance and enhance investor communications. By addressing these areas, it is hoped that Autodesk’s stock price could experience a boost.
Autodesk has faced activist pressures in the past, reaching settlements with Sachem Head Capital Management and Eminence Capital in 2016 to avoid a proxy contest. The company recently disclosed that it is under investigation by the Justice Department and the SEC, adding to its challenges.
Starboard Value’s concerns regarding Autodesk’s disclosures and handling of the internal investigation highlight the importance of transparent and timely communication with shareholders. The potential legal action being considered underscores the significance of shareholder rights and corporate governance practices in today’s business environment. Autodesk’s response to these issues will be closely monitored by investors and industry observers alike.
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