Activist Starboard amasses Autodesk stake, weighs suit over delayed probe disclosure

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  • Activist Starboard Value has a $500 million stake in software maker Autodesk and is weighing legal action over the company's delayed disclosure of an internal investigation into accounting malfeasance.
  • Autodesk moved its chief financial officer to a new role after an internal probe found that executives reversed a shift in billing structure to inflate the company's free cash flow and operating margin numbers.
  • Those two metrics determine executive pay and measure company success.
  • Starboard is concerned that Autodesk delayed disclosing an internal probe until shortly after the nominating deadline for the company's board, which would potentially limit a shareholder's ability to nominate its own candidates in a contested fight.

Starboard Value, the activist fund run by Jeff Smith, has taken a sizable stake in graphics design firm Autodesk and has spoken with the company's board in recent weeks over several serious concerns involving its disclosures around an internal investigation that led to the ouster of its chief financial officer.

Starboard's stake is valued at roughly $500 million, according to people familiar with the matter. The activist, which has a long track record of investing in the technology sector, is particularly concerned about the timing of Autodesk's disclosure of an internal investigation. That investigation revealed that executives misled investors about the company's free cash flow metrics and operating margins, according to the people, who requested anonymity to discuss confidential information freely.

After the probe results came out, Autodesk's then-CFO Deborah Clifford was ousted from her role and moved to a different executive role within Autodesk. The probe found that executives manipulated reporting tied to the company's contract billing structure, as Autodesk shifted back to upfront payments from annualized payments, to improve those metrics.

Autodesk first disclosed in April that it had begun an internal investigation into disclosure issues around those metrics, almost a month after first beginning the investigation and informing the Securities and Exchange Commission about the probe into its financial reports. Autodesk shares slid 20% over the next few weeks. The company's market cap now sits slightly below $50 billion.

The delayed disclosure came a little more than a week after the deadline to nominate directors closed. The tight window and timing of the disclosure raised significant concerns inside Starboard, the people said, that Autodesk's board deliberately chose not to inform shareholders ahead of its annual meeting. Such a delay would potentially limit a shareholder's ability to nominate its own candidates in a contested fight.

Starboard is weighing legal action in the Delaware Court of Chancery to compel the reopening of Autodesk's nominating window and the delay of Autodesk's annual meeting, the people said. Autodesk's shareholder meeting is currently scheduled for July 16.

The activist also believes that the company can drive actual margin improvement and improve investor communications to help bolster Autodesk's stock, the people said.

Starboard has built stakes in other major technology companies, including Marc Benioff's Salesforce and Splunk, which was sold to Cisco in 2023 for $28 billion.

News of Starboard's stake and plans was reported earlier by The Wall Street Journal.

Autodesk has faced activist scrutiny before. In 2016, it settled with two activist investors at Sachem Head Capital Management and Eminence Capital to stave off a proxy contest.

Autodesk disclosed earlier this year that it is facing probes from the Justice Department and SEC.

An Autodesk spokesperson said the company welcomed "constructive input" from shareholders.

"We are confident in our strategic direction, significant margin opportunity, and our corporate governance," the spokesperson said.

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