Activist Starboard amasses Autodesk stake, weighs suit over delayed probe disclosure
Why is Starboard Value considering legal action against Autodesk, and what outcomes are they seeking through this potential litigation?
Starboard Value is considering legal action against Autodesk due to the company's delayed disclosure of an internal investigation into accounting malfeasance. The activist investor believes that Autodesk's board deliberately chose not to inform shareholders ahead of its annual meeting, potentially limiting a shareholder's ability to nominate its own candidates in a contested fight.
Through this potential litigation, Starboard is seeking to compel the reopening of Autodesk's nominating window and the delay of Autodesk's annual meeting. Starboard is also concerned about the timing of Autodesk's disclosure of the internal investigation that led to the ouster of its then-CFO, Deborah Clifford. The investigation revealed that executives misled investors around the company's free cash flow metrics and operating margins.
Additionally, Starboard believes that Autodesk can drive actual margin improvement and improve investor communications to help bolster its stock. The activist investor has a $500 million stake in the software maker and has spoken with the company's board in recent weeks over these concerns.
What specific accounting malpractices did the internal investigation at Autodesk uncover regarding the executives' handling of billing structure and financial metrics?
The internal investigation at Autodesk uncovered that executives had manipulated the company's billing structure and financial metrics to inflate its free cash flow and operating margin numbers3. This was achieved by reversing a shift in billing structure from annualized payments back to upfront payments. These manipulated metrics, which are used to determine executive pay and measure the success of a company, misled investors regarding Autodesk's financial performance. The investigation ultimately led to the ouster of then-CFO Deborah Clifford, who was moved to a different executive role within the company.
What was the timing of Autodesk's disclosure of the internal investigation in relation to the nominating deadline for the company's board, and why is this significant?
The timing of Autodesk's disclosure of the internal investigation is significant because it came a little more than a week after the deadline to nominate directors closed. This has raised concerns among shareholders, including activist fund Starboard Value, that Autodesk's board deliberately chose not to inform shareholders ahead of its annual meeting4. Such a delay would potentially limit a shareholder's ability to nominate its own candidates in a contested fight. As a result, Starboard is weighing legal action in Delaware Chancery court to compel the reopening of Autodesk's nominating window and the delay of Autodesk's annual meeting.