The Activist Fund Starboard Value Challenges Autodesk’s Disclosures

Starboard Value, led by Jeff Smith, has made a significant investment in graphics-design firm Autodesk. The activist fund has raised serious concerns regarding the company’s disclosures surrounding an internal investigation that resulted in the removal of its chief financial officer. This has sparked discussions with Autodesk’s board in recent weeks. Starboard’s stake in Autodesk is estimated at around $500 million, according to sources familiar with the situation. One of the main issues that Starboard is focusing on is the timing of Autodesk’s disclosure of an internal investigation. The probe revealed that executives had misled investors about the company’s free cash flow metrics and operating margins. Consequently, this led to the ousting of the then-CFO, Deborah Clifford, who was reassigned to a different executive position within the company.

The investigation found that executives had manipulated reporting related to the company’s contract billing structure. Autodesk had transitioned from annualized payments to upfront payments, aiming to enhance these metrics. The initial disclosure of the internal investigation came in April, nearly a month after it had commenced. Autodesk had also informed the Securities and Exchange Commission about the probe into its financial reports. This delayed disclosure had a negative impact on the company’s stock, causing it to slide by 20% in the following weeks. Currently, Autodesk’s market capitalization is slightly below $50 billion.

The delayed disclosure of the investigation occurred shortly after the deadline for director nominations had passed. This raised suspicions within Starboard that Autodesk’s board intentionally withheld information from shareholders before the annual meeting. Such a move could restrict shareholders’ ability to nominate their own candidates in a contentious situation. Consequently, Starboard is contemplating legal action in Delaware Chancery court to push for the reopening of Autodesk’s nominating window and a postponement of the annual meeting scheduled for July 16. Starboard believes that the company has the potential to enhance actual margins and improve investor communications, which could help boost Autodesk’s stock value.

Autodesk has previously encountered activist pressure. In 2016, the company reached a settlement with two activist investors from Sachem Head Capital Management and Eminence Capital to avoid a proxy battle. Moreover, Autodesk revealed earlier this year that it is under investigation by the Justice Department and the SEC. Starboard Value has a track record of investing in the technology sector and has amassed stakes in other major technology companies such as Salesforce and Splunk, which was acquired by Cisco in 2023 for $28 billion. The Wall Street Journal first reported on Starboard’s stake in Autodesk and its proposed actions.

The activist fund Starboard Value’s involvement in Autodesk highlights the importance of transparency and effective communication in corporate governance. The challenges raised by Starboard underscore the need for companies to uphold high standards of disclosure and accountability to their shareholders.含

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