Starboard Value, an activist fund led by Jeff Smith, has invested around $500 million in graphics design firm Autodesk and has raised concerns about the company’s handling of an internal investigation that led to the removal of its CFO. The investigation revealed that executives misled investors about the company’s free cash flow metrics and operating margins by manipulating reporting on the company’s contract billing structure. This ultimately led to the ouster of then-CFO Deborah Clifford. Autodesk disclosed the internal investigation in April, almost a month after it began and after informing the Securities and Exchange Commission, causing the company’s shares to drop by 20%.
The delayed disclosure of the investigation occurred shortly after the deadline for nominating directors closed, leading Starboard to suspect that Autodesk’s board intentionally withheld information from shareholders prior to the annual meeting in order to limit their ability to nominate candidates. As a result, Starboard is considering legal action in Delaware Chancery court to compel the reopening of Autodesk’s nominating window and to delay the annual meeting scheduled for July 16. The activist group believes that the company can drive margin improvement and enhance investor communications to boost Autodesk’s stock performance.
Autodesk has previously faced activist scrutiny, settling with two activist investors in 2016 to avoid a proxy contest. In addition to its recent internal investigation, the company has also disclosed that it is under investigation by the Justice Department and the SEC. Starboard has a history of investing in technology companies, with stakes in other major firms such as Salesforce and Splunk. The activist group is known for driving operational and strategic changes in the companies it invests in to unlock shareholder value, and it sees the potential for improvement at Autodesk through better margin performance and communication with investors.
The concerns raised by Starboard about Autodesk’s handling of the internal investigation and its delayed disclosure have raised questions about the company’s governance and transparency practices. The stock market reaction to the news of the internal investigation highlights the importance of timely and accurate disclosure of material information by publicly traded companies. As an activist investor, Starboard’s involvement with Autodesk could lead to significant changes in the company’s policies, practices, and leadership, ultimately impacting its financial performance and shareholder value. It remains to be seen how Autodesk will respond to Starboard’s actions and whether the activist group’s efforts will lead to increased shareholder value in the long term.
