Starboard Value, the well-known activist hedge fund led by Jeff Smith, has recently acquired a significant stake in graphics-design firm Autodesk. The firm has expressed serious concerns regarding Autodesk’s disclosure practices related to an internal investigation that ultimately led to the removal of their CFO. The activist fund’s stake in Autodesk is said to be valued at approximately $500 million. Starboard Value, known for its involvement in the technology sector, has raised questions regarding the timing of Autodesk’s disclosure of the internal investigation results which unveiled that executives had provided misleading information to investors concerning the company’s free cash flow metrics and operating margins.
Executive Misconduct Uncovered
The internal investigation at Autodesk revealed that executives had manipulated reporting related to the company’s contract billing structure. This manipulation occurred as Autodesk transitioned from annualized payments to upfront payments in an effort to enhance its metrics. The probe’s findings resulted in the removal of Autodesk’s CFO at the time, Deborah Clifford, who was reassigned to a different executive position within the company. Autodesk first announced the commencement of the internal investigation in April, almost a month after the investigation had begun, and after notifying the Securities and Exchange Commission of its financial reports being under scrutiny. Following the announcement, Autodesk’s stock experienced a 20% decline, causing the company’s market cap to dip slightly below $50 billion.
Starboard Value has expressed concerns over Autodesk’s delayed disclosure of the investigation results, which occurred shortly after the deadline for director nominations had passed. The fund suspects that Autodesk’s board intentionally withheld this information from shareholders prior to the annual meeting in an effort to limit shareholders’ ability to propose their own candidates in a potential contested election. As a response, Starboard Value is considering taking legal action in Delaware Chancery court to demand the reopening of the director nomination window and to postpone the annual meeting, currently scheduled for July 16th.
In addition to addressing the disclosure concerns, Starboard Value believes that Autodesk has the potential to achieve actual margin enhancement and enhance its investor communications, ultimately strengthening its stock performance. The activist hedge fund has previously invested in other prominent technology companies such as Salesforce and Splunk, the latter of which was acquired by Cisco in 2023 for $28 billion. It has been reported by the Wall Street Journal that Starboard Value has taken a stake in Autodesk and is considering ways to influence the company’s operations and strategic decisions.
Autodesk has previously faced activist pressure in 2016, when it settled with two activist investors to avoid a proxy battle. Additionally, the company revealed earlier this year that it is currently under investigation by the Department of Justice and the Securities and Exchange Commission. These regulatory challenges add another layer of complexity to Autodesk’s current situation, as the company strives to address activist concerns while navigating legal scrutiny. The outcome of Starboard Value’s involvement in Autodesk and the potential impact on the company’s future direction remains to be seen.