Activist Investor Starboard Takes Aim at Autodesk CEO, Pushing for Change
Activist investor Starboard Value has escalated its campaign to improve Autodesk’s performance, demanding the board re-evaluate CEO Andrew Anagnost’s leadership after seven years at the helm. Starboard, which acquired a $500 million stake earlier this year, has shared a detailed presentation with Autodesk’s board outlining its concerns and proposed solutions. The presentation highlights Anagnost’s lackluster track record, including missed investor day commitments and underperformance compared to industry benchmarks. Notably, Autodesk’s shares have underperformed its benchmark indexes in every annual time frame since Anagnost’s appointment, returning 113% over a seven-year window, while the Dow Jones’ US Software benchmark has skyrocketed by 362%. This underperformance stands out even more when considering the strong performance of the technology sector in recent years.
Key Takeaways
- Starboard demands reassessment of CEO Anagnost’s leadership: The activist claims Anagnost’s leadership has resulted in underperformance and missed commitments, calling for a change at the top.
- Starboard advocates for cost cuts and executive compensation changes: Starboard believes these measures can improve operating margins by up to 1,000 basis points, leading to better operational leverage and increased share buybacks.
- Autodesk’s accounting misconduct under scrutiny: Starboard repeatedly highlights the company’s accounting misreporting as a major concern, stating that Autodesk has not taken sufficient action to address the issue.
- Starboard’s track record of success: The activist investor has a history of successful campaigns in the technology sector, having previously targeted Salesforce, Match Group, and GoDaddy.
Unpacking the Concerns
Starboard’s presentation delves into several areas of concern regarding Autodesk’s performance and management.
Leadership Concerns:
- Missed Commitments: Starboard criticizes Autodesk for consistently failing or falling short of its investor day commitments since 2018, all under Anagnost’s leadership. This inconsistency raises questions about the company’s ability to meet its own targets and effectively communicate its performance and strategy to investors.
- Underperformance Relative to Peers: Starboard’s analysis reveals that Autodesk’s shares have underperformed its benchmark indexes, including the Dow Jones’ US Software benchmark, for seven years. This underperformance suggests that Autodesk’s strategy has not been as effective as its peers in creating shareholder value.
- Accounting Misconduct: The activist continues to emphasize the accounting misconduct and misreporting previously disclosed by Autodesk, which led to the reassignment of the CFO and further damaged investor confidence. The lack of a more decisive and transparent response to this issue adds to Starboard’s concerns about the company’s leadership.
Financial Performance Concerns:
- Missed Opportunity for Margin Improvement: Despite achieving a best-in-class gross margin of 93% compared to a peer median of 82%, Autodesk’s operating margin of 35% is below average. Starboard argues that the company is missing a significant opportunity for margin expansion by not effectively managing its operating costs.
- Underutilized Financial Resources: Starboard believes that Autodesk could deploy its free cash flow for share buybacks, which would benefit shareholders and create additional value. Instead, the company is perceived as failing to maximize its financial resources for optimal shareholder returns.
The Future of Autodesk
Starboard’s efforts to influence Autodesk’s direction are far from over. While a Delaware judge initially ruled against Starboard’s attempt to expedite a proxy fight, the activist has signaled its commitment to pursuing change through other means. Given Starboard’s track record of successfully driving change at tech companies, Autodesk faces a significant challenge in addressing the concerns raised by the activist investor.
The key question now is how Autodesk will respond to Starboard’s demands. It remains to be seen whether the company will engage constructively with the activist’s proposals, leading to improvements in its performance and governance, or entrench itself in current practices, potentially leading to further shareholder unrest. Ultimately, the outcome will likely depend on the board’s willingness to address Starboard’s concerns and take concrete steps to improve the company’s performance, both financially and operationally.
The pressure is on Autodesk to make changes, and the next few months will be crucial in determining whether Starboard succeeds in driving its desired transformation at the software giant.
