Autodesk shares gain following deal with activist Starboard

Investing.com -- Shares of Autodesk gained 2.5% on Thursday after the company and activist investor Starboard Value reached a deal to place two new independent directors on the board. Starboard had initially pushed for three board seats.

Under the deal, Autodesk (NASDAQ:ADSK) will add Jeff Epstein and Christie Simons to its Board of Directors. Both appointees will initially serve as non-voting observers until the 2025 Annual Meeting of Stockholders on June 18, 2025, after which they will become full voting members.

Stacy J. Smith, Chairman of the Autodesk Board, welcomed the new members, highlighting their extensive expertise in technology, finance, and audit, which will complement the Board's skillset. Smith expressed confidence that their insights will be valuable in advancing Autodesk's industry cloud, platform, and AI strategies, ultimately enhancing business performance and shareholder value.

Jeff Smith, CEO of Starboard, expressed the investment firm's belief in Autodesk's potential to improve profitability and create significant value. He acknowledged the constructive dialogue with Autodesk's management and Board and anticipates that Epstein and Simons will contribute valuable perspectives to the Board's oversight of the company's strategy for enhanced profitability.

The collaboration between Autodesk and Starboard is formalized through an Information Sharing and Discussion Agreement, which aims to drive sustainable value creation for all shareholders. As part of this cooperation agreement, Starboard will retract its director nominees and has agreed to customary standstill, voting, and other provisions.

Following the 2025 Annual Meeting, Autodesk's Board will expand to 12 directors, with 11 serving independently.

Commenting on the development, BMO Capital analyst Daniel Jester called it a “reasonable outcome.”

“For Autodesk, this reduces distractions as management navigated the uncertainty of a proxy vote, and now allows them to remain focused on the business in a turbulent macro,” Jester said. “For Starboard, the ability to affect change with only a minority of board seats in a hostile environment could have been constrained, and now can make the margin case internally ahead of an expected update later this year.”

The analyst highlights that Simons was part of the original slate, and Epstein is a seasoned tech executive and investor with experience serving on the boards of several public companies, including AvePoint, Couchbase, Okta (NASDAQ:OKTA), and Twilio (NYSE:TWLO).

Jester predicts that Autodesk's margin drive is highly likely to persist in the coming quarters. The company is undergoing various business transitions, which are expected to gradually lessen their impact on operations. Additionally, management is seen to have significant opportunities to enhance the company's underlying profitability. This outlook aligns with Autodesk's robust market positions and scale. Despite challenges in achieving aggressive EBIT margin targets, such as the 41-42% margins suggested by Starboard, without substantial restructuring, the magnitude of these targets does not appear overly ambitious.

Investor sentiment towards Autodesk stock has been generally positive, with many seeing multiple ways to win, the analyst added. The reasonable FY26 topline guide, alongside pressure from Starboard to hasten margin achievements, could lead to transformational changes within the company which has been range-bound for the past 5 years or so.

“To that end, we think near-term focus re-centers on the near-term growth outlook amid manifest uncertainties impacting many of Autodesk’s customers today, while the planned analyst day later this year should offer greater clarity on the multi-year margin opportunity,” the analyst concluded.

Jester has a Market Perform rating and a $324 price target on Autodesk’s stock.

This article first appeared in Investing.com